Many companies have cash flow problems from time to time. This isn’t necessarily a reflection on how successful a business is, it’s just a part of the business world. Some companies may have foresight enough to plan for these rainy days with cash reserves, but not all organizations have the luxury of storing away the adequate cash needed to weather those times when money is tight. Many times, an enterprise will spend every spare dollar keeping up with demand. However, in these instances, debtor finance may be an option.
Debtor financing is a method of using a businesses existing accounts receivable as collateral for much needed cash. It is possible for a company to get up to 90% of the total amount owed on the account, without having to manage the collections themselves. This is a solution that helps a business stay out of debt while still allowing them to have access to the money they immediately need. In addition, it spares the business the trouble of collecting on slow paying accounts.
However, debtor finance solutions don’t always mean relinquishing a businesses right to collect on an invoice. With invoice discounting, a business can get up to 90 percent of current invoices from a lender. Once the account receivable is paid, the money received plus fees will be paid back to the lender. However, if the business has an internal collections department, the business will do the collecting rather than turning this over to the finance company that facilitated the invoice financing.
The other option is known as invoice factoring. This will still allow a business to borrow up to 90 percent of outstanding invoices, however, the lender will also use their collection department to assume the responsibility of collecting the outstanding invoices used as collateral in the financing. This option may be a bit more expensive in terms of fees, but it absolves the business from having to take the time and effort to collect from slow to pay invoice holders.
As you can see, cash flow solutions offers a business a few different options for the necessary cash that is often tied up in existing accounts receivable. If your business needs extra cash to expand, or perhaps to cover day to day expenses, debtor finance solutions such a invoice financing may be viable option. It’s a flexible and simple way to get the cash your organization needs without incurring any long term debt that often ends up hurting rather than helping a business.
Invoice Finance Perth 