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Update: The Australian and New Zealand operations of Bibby Financial Services were acquired by Scottish Pacific Business Finance in late 2015 to create Australia’s largest non-bank invoice finance specialist. Welcome to our website.

corporate1.1All businesses aim for a healthy bottom line. But while it is possible to operate a business at a loss, it is not possible to sustain or certainly to grow an enterprise without steady cash flow and the required level of working capital.

In today’s credit controlled environment, revenue can be delayed for up to ninety days, sometimes even longer. Unfortunately, SMEs reliant on their existing customers are forced to allow these late payment cycles and thereby tend to fuel an acceptance of the practice.

Debtor Finance, also known as Factoring, cashflow finance and invoice finance, offers SMEs a solution to cashflow problems caused by slow paying customers. Businesses can access up to 80 per cent of the value of unpaid invoices within 24 hours of issue.

There are many hidden benefits to Debtor Finance and Factoring. Knowing the funds are available immediately encourages confidence in decision making, autonomy and flexibility over rigid bank terms, effective time management and bottom line protection.

More and more SMEs are adopting this form of credit management. As small business in Australia now contributes more than one third of the nation’s GDP, it is no longer commercially viable for the sector to carry the burden of late payers.

A common alternative is to encourage early payment of invoices by offering customers a discount, often up to seven percent but sometimes a greater amount. While effective in the short-term this kind of discounting can prove expensive over the long term and erode margins. It also provides little room for business expansion. Furthermore, many SMEs lack the resource required to closely monitor the timings of payments, and some debtors can even automatically apply the discount to the invoice, whilst not paying within the time frame to be eligible for the discounts, knowing that the supplier will then have to chase a new invoice with the correct amount, which further delays payment.

For example, a business that turns over $1 million annually and offers a four per cent payment discount potentially loses up to $40,000 each year. If this amount was recouped and invested at a decent rate of interest over five years, the business could accrue up to $230,000 to reinvest in the firm.

The growth of Debtor Finance in Australia in recent years reflects a need among SMEs for a more flexible financing solution, particularly in times of tight credit from traditional sources. It is especially attractive to those SMEs with low fixed asset bases, who don’t want to risk personal property security or those engaged in the growth phase of their business.

By allowing businesses the capacity to draw on their aggregated invoice total, debtor finance is a cashflow finance facility that is completely aligned with the business’ performance and growth. It allows the client to absorb the impacts of later payments, whilst continue to remain competitive on trade terms with suppliers. Furthermore, the time and resource spent managing finances and cashflow can be reallocated to fostering better relationships with customers and agreeing on better terms of trade or negotiation better terms with their own suppliers.

Businesses particularly suited to debtor finance are those with long cash cycles or are exposed to cyclical demand for outputs, for example wholesale, but who must carry a lot of cost and pay large sums for such items as raw materials or import duties, to keep their business operational. These businesses are generally manufacturers, importers, business service providers, wholesalers and fast-growing businesses where the primary balance sheet asset is debtors.

While the cost of debtor finance is generally competitive with bank overdraft rates although typically marginally higher, debtor finance does not require business operators to offer personal assets such as the family home as security, an attractive feature in times of uncertainty

Debtor Finance unlocks debtor funds and with that the courage and conviction vital for strategic business development and investment. It empowers businesses to secure competitive trade terms, honour substantial orders for stronger relationships, pitch for new opportunities and ultimately grow in perfect alignment with client demand.

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