8 Advantages of using Debtor Finance

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The days of bank overdrafts being the only option for funding are over, and debtor finance is becoming the preferred option for many Australian SMEs. Continue reading to find out why.

Poor cash flow is one of the main reasons SME’s fail in Australia.

Without consistent working capital, it’s difficult to purchase new equipment and materials or even pay staff wages.

This problem is made worse by the inflexibility of the banks to provide higher levels of funding to firms with low fixed asset bases.

But the days of bank overdrafts being the only option for funding are over, and debtor finance is becoming the preferred option for many Australian SMEs.

1. Gain a competitive advantage

The fast access to funds that debtor financing can provide means that while your competitors are waiting months for payments to come in before committing to sales, your business could be saying yes to new deals earlier.

This is particularly important in competitive industries, where success can come down to better liquidity and speed.

2. You don’t need a long credit history

Debtor finance is based on the value of outstanding invoices (your receivables).

This makes it a good option for new or growing businesses that have increasing sales and good prospects but have short trading history which often means they don’t qualify for bank funding.

3. Bottom line benefits

The availability of cash to the business owner via debtor finance can also mean the business can access supplier discounts for volume or early payment, helping to maintain and boost margins.

4. No need to put your house on the line

A common prerequisite of commercial overdrafts is providing private or commercial real estate as security.

But with debtor finance, real estate is not required as security, and that means lower risk to you personally.

5. Fast access to cash flow

Debtor finance can often be approved and in place in a matter of days, and once an account is established, funds can usually be available within 24 hours.

6. Funding limits are not locked in

A common problem for fast-growing businesses is when the cash flow requirement goes beyond the fixed limit of the bank’s overdraft.

Debtor finance limits are not restricted by the value of property security.

So a business can continue raising capital for as long as they have secure invoices to sell.

7. Frees up security for other uses

As debtor finance does not require real estate security, property can then be used as security for other purposes, for example investment and wealth creation.

8. Take control of seasonal demand

Many businesses have an element of seasonality in their sales, and for some it can be make or break in terms of annual results.

Debtor Finance ensures that cash flow is matched with demand during peak periods, and cash can be brought forward in the leaner periods where trading is slower and debtor days stretch.

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