1. No real estate is required as security means lower risk. A key requirement of commercial overdrafts is putting up personal or commercial real estate as security. With debtor finance, the value of the invoices secures the finance, so real estate assets are not at risk.
2. Get quick access to funds. Debtor finance can often be approved and in place in a matter of weeks (not months), and once an account is set up, funds can typically be accessed within 24 hours at call.
3. Flexible limits which can grow as the business grows. When sales and receivables increase over time, your business can quickly receive an increase in funds that are needed to finance this growth.
4. Higher funding limits. A common problem is where the funding requirement of the business outgrows the fixed limit of the overdraft. Debtor finance limits are not restricted by the value of property security. Additionally, because receivables are often a large asset on the balance sheet, higher funding limits can be unlocked.
5. Less rigidity. No interest cover or debt-servicing cover ratios to comply with. This can assist loss-making or low-equity businesses, meaning it is a powerful solution for young startup businesses, or service businesses without a large capital base.
6. 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.
7. Based on your current position, not your history. Debtor finance is based on the value of outstanding invoices (your receivables). This makes it suitable for new growing businesses that have increasing sales and good prospects but have short trading history which often means they don’t qualify for bank funding.
8. Bottom line benefits.
- Debtor finance facilities provide an accounts receivable service. In some cases, outsourcing this work can be more cost effective than hiring a full time resource.
- Additionally, 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.
- At the same time, the business’s own early settlement discounts can be reduced or even completely scrapped.
9. Gain a competitive advantage. In competitive industries, success can come down to better liquidity and speed. A debtor finance facility, used appropriately, provides a business the ability to retain customers on attractive terms as well as ensure reliable cash flow to the business. Additionally, fast access to funds 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 business earlier. In fact,
10. Confidence in decision making. The importance of confidence cannot be understated. Businesses need to be making decisions to stay competitive and adjust to their environment and with reliable cashflow assured, an owner can be confident funding will be available to smooth out fluctuations in cashflow and ensure supplier and customer relationships are as strong as possible.