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Debtor Financing – A Convenient Way to Overcome Your Cash Flow Problems

Debtor Financing – A Convenient Way to Overcome Your Cash Flow Problems

For any business organisation to survive and expand in the market environment, it is necessary for the entrepreneur to manage its cash flow successfully. Many business enterprises have gone into liquidation simply because they were short of cash to meet their operating expenses. This was in spite of the fact that their clients owe them money with a 30-to-60 day payment terms, but they did not have the cash reserve to wait for that period to be paid. For many small and medium business enterprises, offering payment terms to their clients offers credit risks. It creates serious cash flow problems and prevents from meeting their obligations like payments to employees or suppliers.

A convenient way to overcome such serious cash flow problems is by debtor financing. Debtor financing has a number of important advantages for both small and medium business enterprises by offering a flexible line of credit based on their outstanding invoices.

Most business enterprises sell their goods or provide services to their customers by offering credit terms of 30 to 60 days for securing orders. However, in most cases these invoices take more than 60 days to be paid. This reduces the business enterprise’s cash flow and can seriously limit the growth of the business.

Debtor financing allows business enterprises access to liquid funds owed to them in outstanding invoices before their clients actually pays them their dues. Debtor financing is a suitable way by which business enterprises can have access to liquid cash owing in outstanding invoices. The business enterprises get the remaining percentage once the customers clear their dues against the invoice less administrative expenses and commission charged by the financier.

In debtor financing, as the business enterprise delivers goods or provides services to its customers, the invoices raised are forwarded to the financier. The financier will then verify these invoices and advance liquid funds to the extent of ninety percent of the invoice value within twenty-four hours. The business enterprise will receive the remaining amount as soon as the clients clear their dues on the invoice less a small fee charged by the financier. Most business enterprises have the option to retain control of the accounting and collecting function or outsource this function to the financier. Most Debtor financing financiers provide their clients with online access to reporting to allow such enterprises to track payment receipts.

Debtor financing offers a number of advantages to small and medium business enterprises that include:

  • Flexibility – Debtor financing facility limits grow in-line with the turnover of the business.
  • Improved cash flow – It is possible to obtain available liquid cash against the sales generated by the business within twenty-four hours.
  • Negotiating Power – The business enterprise is in a better position negotiate favourable trading terms with suppliers. This enables it to take advantage of prompt payments discounts and to make bulk purchases.
  • Eliminates discounts to clients – Debtor financing eliminates the need for business enterprises to offer prompt payment discounts to customers.
  • Retain Business Equity – The availability of liquid funds from debtor financing can help business enterprises expand by purchasing equipment rather than selling business equity.

To know more contact credible debtor finance in Adelaide experts for aid!