Invoice Debtor Finance is a specialist commercial credit facility structured to assist businesses  with slow paying customers with timely payment of invoices. Having to wait too long to receive payment of invoices can be one of the biggest problems for businesses. You’ve done the work, incurred the cost of wages, materials and supplies but then have to wait 60, 90, 120 days or even longer for your customer to pay your invoice. A wait which can place pressure on your cash flow, potentially causing you to have to pay your bills late and possibly impact your credit rating.

This issue can be complex as many business owners may not be keen to put too much pressure on their customers for payment. In tough economic conditions, retaining good customers can be a real asset. In some industries such as construction, many contracts, while highly valued, may require the contractor to agree to long payment terms.

The issue may place businesses in a quandary, but there are solutions with financing opportunities for invoice payments.

What is invoice debtor finance?

Invoice Debtor Finance is a credit facility where a business enters a finance agreement with a lender. The lender pays a set percentage of the value of the business’ invoices at the time they are issued, and the balance when the debtor pays the amount in full to the lender.

Interest is charged on the amount paid at the time the invoice is issued – essentially the loan which is subject to interest. A service fee also applies. The business receives an amount that they consider they require immediately and wait for the remaining amounts in line with the debtor’s payment terms. This type of credit may be set-up for all or a selection of debtors over a short-term or as an ongoing facility.

How Invoice Debtor Finance Works

Your Business Finance broker will work with you to establish your specific requirements, source the right lender, and negotiate a workable credit facility. The business owner establishes the percentage of the invoice value that they require with the immediate payment.

The business issues its invoices with the account for payments to be made into an account set-up by the lender. The invoice is issued to the debtor and the lender. The lender immediately remits the percentage of the invoice value as agreed.

When the customer pays the full amount to the lender, the lender remits the balance less interest and any fees to the business. Interest is only payable on the amount paid initially. Businesses can minimise their interest charges by setting a lower percentage required immediately.

Eligibility for Invoice Debtor Finance

All types of commercial entities may be eligible for this type of commercial credit. This includes new and small as well as long-established concerns. New businesses may especially benefit as they may face issues meeting their set-up and upfront expenses in the initial stages of the trading, while waiting for customers to pay their bills.

You will need an ABN and ID and meet lender criteria. As this type of credit does not require the business to repay a loan such as with asset financing, approval may be easier than with some other forms of financing.  

Alternatives to Invoice Debtor Finance

While debtor financing can be a very effective solution, there are other credit facilities to support businesses with cash flow problems. Where payment of invoices by customers is less specific or scheduled, possibly some weeks or months they pay promptly while at other times they take longer, a Business Overdraft Facility may be a solution. An Overdraft can be set-up as an ongoing line of credit but the business only pays interest on the credit used each month. 

Where the cash flow issue emanating from payments of invoices is seen as an issue that will be resolved in a set timeframe, an Unsecured Business Loan may be considered. These are very versatile credit products as they can be used to fund a range of business expenses with fixed terms for repayments.

Our brokers are available for confidential discussions on the full range of credit options and will explain the benefits and most cost-effective solutions to suit your specific requirements. Don’t risk the potentially negative outcomes of trying to manage cash flow with slow-paying contracts and customers. Solutions are available to assist and support your business.

Comparing Debtor Finance Options

To assist business owners to assess their options for funding issues from slow-paying customers, we provide an easy-to-use Finance Calculator. quickly work up estimates on a number of credit solutions to compare the interest and assess which may best suit your needs.

Speak with Business.Finance on 1300 000 033 to discuss Invoice Debtor Finance and other commercial credit facilities. 

DISCLAIMER: THE SPECIFIC PURPOSE IN PROVIDING THIS ARTICLE IS FOR GENERAL INFORMATION ONLY. IT IS NOT INTENDED AS THE SOLE SOURCE OF FINANCIAL INFORMATION ON WHICH TO MAKE BUSINESS FINANCE DECISIONS. BUSINESS OWNERS WHO REQUIRE ADVICE OR GUIDANCE AROUND THEIR SPECIFIC FINANCIAL CIRCUMSTANCES ARE RECOMMENDED TO CONSULT WITH AN ADVISOR OR ACCOUNTANT. NO LIABILITY IS ACCEPTED IN REGARD TO ANY MISREPRESENTATIONS OR ANY ERRORS RE ANY DATA, SPECIFICS, POLICIES AND OTHER INFORMATION AS SOURCED FROM OTHERS