Guide to debtor finance and invoice financing

What is debtor finance, invoice financing or invoice discounting?

Debtor finance, also called invoice finance or invoice discounting is when a business sells all or part of their debtors' ledger (unpaid invoices) to a financier to raise working capital for business growth and expansion or other expenses, such as paying salary.

How does debtor finance or invoice financing work?

As a business delivers its goods or services to its customers, the invoices raised can be sold to a financier.

The Financier is able to advance up to 90% of the unpaid invoices value within 24 hours. The remaining 20% is advanced after the invoice is paid, less a small fee, payable to the financier.

The business simply forwards copies of the invoices to the financier. Once verification of invoices is complete funds are advanced. It is possible for the business to retain control over accounting functions and collections, or they can opt for the financier to follow up with the unpaid invoices on their behalf.

What are the benefits of debtor finance or invoice financing?

Debtor finance or invoice financing offers the business many benefits including:

• Funds are readily available - usually 24 hours

• Your business can negotiate better trading terms with suppliers, including early settlement discounts and the ability to buy in bulk

• Invoice financing eliminates the need to offer settlement discounts to customers

• Invoice financing fees are usually cheaper than settlement discounts

• You know with certainty when you will receive the cash with invoice financing

• No real estate security required with debtor finance

• You can save on management time and money by outsourcing debtor management to the financier or maintain control

What are the costs of invoice financing or debtor finance?

The fees for setting up an invoice financing facility will vary depending on the mortgage lender and is usually based upon setup structure, size and risk.

As a premier provider of business cash flow solutions, our experienced mortgage brokers first understand your business and then tailor a business finance solution to suit your business needs. For more information about debtor finance or invoice financing and how it can be used to improve business cash flow, speak to one of the mortgage brokers at Intellichoice today on 1300 55 10 45.