However fine a business runs, there arise situations where they face a lack of working capital. These disruptions of cash flow may affect the long-term profitability of the businesses. To revive from such situations, debtor financing is a very smart move. A good run of a business cycle does not always mean that their bank is full of cash. In that case, debtor finance works as invoice finance. This ensures to untie all the tied-up capital through the outstanding sales invoices. Let us know more about this financial tool.
How does it work?
This works when the businesses have raised an invoice. When raised, 95% of the invoice value can be immediately accessed. The business receives the remaining balance upon deducting the fees once the customer pays the outstanding invoice. This is a popular financing method as acquiring this loan does not require businesses to keep any security or collateral. This is also not a long term debt added to your business.
Is this a good idea?
A business raises an invoice when they provide any goods or service to another business. But the waiting period is generally 30+ days where they need to wait to get paid. This waiting period makes it difficult for the business to run their daily cash-related operations and cover the overheads, supplier payments or take new orders. With debtor financing, they can find easy funding solution and make unpaid invoices turn into working capital.
Why is this a popular solution?
This solution of debtor financing is preferred by all businesses, large and small. This is an immediate measure to cover cash flow gaps and secure great profitability. With this financing, businesses can:
- Pay the suppliers at right time.
- Negotiate receivable discounts on early payments.
- Increase the stock count to cater to peak demands.
- Take on the increment of workload capacity.
- Purchase upgraded equipment and machinery.
- Avoid risking assets as collaterals.
What are the types?
There are mainly two forms of debtor financing: invoice discounting and invoice factoring. Both of the types have specific sets of features and advantages that make them suitable for various businesses.
Invoice discounting is a very confidential arrangement where the lenders use the invoices as collaterals. Invoice factoring, on the other hand, is the responsibility of collecting the payments by the finance companies.
Accord Financial masters the debtor financing solutions and businesses rely on them confidently to get their financial turmoil sorted.
