Working capital is needed by all businesses to fund their current operations and pursue growth opportunities as they arise. Most small to medium enterprises (SMEs) will struggle to generate sufficient working capital internally to meet their requirements and instead, turn to external financing to fill the gap. Debtor finance is an increasingly popular option for SMEs looking to leverage their accounts receivable ledger to access cash sooner. Instead of waiting up 45-60+ days for customers to pay you your invoices, your business can access the money almost immediately.
Debtor finance providers will pay you up to 90% of your verified outstanding invoice value upfront. A debtor finance facility acts as a revolving credit line backed by the invoices you issue to your customers. You can choose to draw down funds as often or as little as you like, only paying for what you use. Your business can use this cash instantly to pay your bills, secure new supplies or invest in growth opportunities. A competent working capital finance partner is often key to your SMEs future success. So when it comes to selecting a debtor finance provider, what questions can you ask to ensure they’re up to the task?
1. What is Their History, Do They Have Experience?
Debtor finance isn’t the most complicated product out there. However, inexperienced operators may cause more problems than they solve. Providers that don’t understand your business or have never worked with a company in your industry before may find it challenging to deliver the service you expect. Disclosed debtor finance facilities sometimes involve your provider contacting your customers (for example, to validate invoices). A clueless provider may not develop the right relationship with your customer base, so while rare, it’s something to consider. A financier that’s been around for at least a few years is generally a good sign that they’re doing something right, especially if theyre doing disclosed facility it means that your customers/debtors have not been interfered with and you can get on with business, as usual. It also means they’ve serviced a wide range of customers and various industries and dealt with many unique financing situations.
2. Who Will You Be Dealing with Regularly?
Before signing up, make sure you are clear on who will be managing your debtor finance account. The bubbly sales personalities you deal with when applying are usually not the same team that will handle your account on a daily basis. You will rely on your account manager and be in regular contact with them. Understand who this person is, what you can expect from them, as well as what they need from your business to provide an outstanding service. What’s their personal experience with managing clients similar to yours? They’re ultimately there so help you and your business grow, so ensure you build a good relationship with them.
3. What size businesses do they usually work with?
Debtor finance providers often have specific preferences when it comes to the size of their clients. As a general rule, you don’t want to be their largest customer. It may be difficult to access the funding you need to grow your business into the future – make sure they’re up to the job and can scale with you. Alternatively, you don’t want to be your debtor finance providers smallest customer either. Although they may promise the same service, it makes sense that they focus on their more valuable clients, particularly when times get tough and everyone is under additional pressure. In general invoice finance providers service companies with annual revenue of circa $1.0 million up to $80+ million, so its wide range.
4. Do They Specialise in Specific Industries?
While your provider does not need to exclusively deal with SMEs in the same industry, they need to have a solid idea of the ins-and-outs. Larger providers will almost certainly have dealt with similar businesses to yours as some point. Alternatively, smaller operators may choose to dedicate their knowledge base to a trimmed list of sectors that they know best. For example, they may offer specialist debtor finance in only a few industries, whereas other as industry agnostic. It is always worth checking with your prospective provider, they may already have a working relationship with a few of your customers!
5. What Type of Facility is it – Confidential or Disclosed?
Confidential and disclosed debtor finance facilities have their differences, so it is essential to know which one you’re applying for. Disclosed facilities involve a level of administration and interaction from your provider with your customers (to confirm receipt of invoices and payment). Disclosed facilities, although your customers know about it, it is generally a very low touch and does not interfere with your relationships with your customers. It is a fallacy that your customers will think you are in trouble because you are using an invoice providers. At the end of the day your customers, by taking 45-60+ days to pay you, are in fact using you as their bank. Invoice finance is not factoring it is aimed at growth businesses and your provider is there to ensure a smooth process and to ensure good relations continue with your customers. Disclosed finance facilities are most common for invoice finance, only large businesses that are growing quickly with a well diversified debtor base are provided with a confidential facility. Confidential invoice finance does not require your debtors to know that the provider is involved, yet your business needs to be well established; have revenue north of $10M per year; a well diversified customer base; no ATO debt as well as a few other criteria in order to qualify. Know the difference and what to expect with each – both are great options and both are not shunned upon by debtors, this is pure fallacy.
6. Do They Have Positive Reviews and Testimonials?
Just like any good or service you decide to purchase, reviews and testimonials are some of the most important resources you can use to help make an informed decision. Use the internet to research verified reviews, such as those from Google and review websites such as Trustpilot. Even if you got a great vibe from the company, several unhappy customers probably tell you something about the true colours of the provider!
“Ask if you can speak to any current or previous customers of theirs as a reference.”
Better yet, ask if you can speak to any current or previous customers of theirs as a reference, asking about their experience with the provider. If a similar-sized SME (or another in your industry) speaks highly of them, it’s a good sign they will be an excellent fit for you too.
7. Are There Any Additional Services Included?
Every provider has its requirements and unique product and service proposition. Some offer bare-bone debtor finance while others go above and beyond to partner with your SME. Providers such as OptiPay (OptiPay) allow you to protect yourself from customers that don’t pay. OptiPay includes a form of trade credit insurance as an additional layer of protection. If your customer/s default on their payments as a result of them going into insolvency then OptiPaySecure™ protects you by covering up to 90% of the invoice value issued to your debtor and funded as well as the legal costs to chase your client. Whether you opt for an entry-level service or a premium provider is your call, however, think carefully about which option would be best for your business in the long run.
Don’t let a lack of working capital hold your business back. There are many options available for SMEs having cash flow issues, looking to expand or sure-up their financial position. Debtor finance is a flexible solution that allows your business to use your unpaid invoices to access funds within as little as 24 hours. Unlock tomorrow’s cash today with OptiPay.
Who is OptiPay?
OptiPay, one of Australia’s leading business finance providers, has been dedicated to helping small business owners solve cash flow challenges for over a decade and has provided $1.5 billion in business funding to more than 500 Australian businesses. OptiPay specialises in modern financing solutions such as invoice factoring, invoice finance, debtor finance, and lines of credit. OptiPay’s mission is to support business growth providing liquidity in as little as 24 hours, ensuring they have access to tomorrow’s cash flow today. This rapid access to funds helps businesses maintain smooth operations and seize growth opportunities without the stress of cash flow constraints. At OptiPay, we believe that healthy cash flow is the lifeblood of any successful business. Our commitment to helping businesses overcome financial hurdles and achieve their growth ambitions has solidified our reputation as a trusted partner in the business finance sector. Whether you are looking to stabilise your cash flow, expand your operations, or navigate financial challenges, OptiPay is here to support your journey with innovative and efficient financing solutions.
