Cashflow Options – Debtor Finance
A Debtor Finance Facility may be the answer to unlocking the true cashflow potential for your business according to Bank of Queensland’s Marissa Robbins.
Why would I plug BoQ ahead of other banks? Because Marissa and her boss actually asked to talk to us about this, then travelled to meet us at our office. That’s a bit different for a banker these days, and we were impressed.
Other People Using Your Money
In business, cashflow is king – the foundation of growth, the key to new opportunities, the cornerstone of competitiveness and the secret to staying in business, long-term.
Cash gives us control in so many situations and yet, competing with this fact is the (sometimes correct) perception that if we don’t offer our customers credit terms (an interest-free loan), they won’t deal with us. So we do – and so we lose control of our money for anything up to 90 days while our customer uses it for nothing.
Our cash in other people’s hands could be costing us opportunities to buy more stock at better prices; opportunities to invest in a rising market; opportunities to invest in advertising that may create new sales. You get the picture.
What is Debtor Finance?
Debtor Finance is a working capital facility that is directly linked to the value of your unpaid receivable invoices. In simple terms, the bank will pay you on the face value of your outstanding invoices, charge you a small fee, and wait for repayment directly from your Customers when they settle their accounts.
Debtor Finance makes sense if you:
- Experience rapid expansion and have to buy more stock and equipment to meet rising demand before you are paid for the last batch of sales.
- Have few or none of the traditional “fixed assets” that banks ask for as security for loans.
- Experience a period of tighter than usual liquidity for any reason.
- Want to ramp up for a big season but find cash short at the outset.
- Find your debtors paying slower than usual (a common issue in the current slow-down) .
- Any or all of these could cause you cash challenges if your traditional loans or overdraft facilities are not flexible enough to cover your working capital requirements.
Debtor Finance Basics
Most Debtor Finance arrangements offer the following advantages:
- Upfront cash within 24 hours of issuing your invoices.
- Discount proofing since there is no need to give discounts or incentives for speedy payments.
- Discount advantage – having your own cash on hand may put you in a strong bargaining position with your suppliers.
- Your real estate (or home) stays out of the business and the bank’s clutches because your accounts receivable are the prime security, sparing your personal assets.
- With cash on hand, you can save the attention you used to devote to collecting your money, and apply your energy directly and exclusively to the money-making activities of your core business.
- You gain flexibility and avoid the cash-squeeze that rapid growth can create because your level of cash on hand is directly related to your level of sales activity. As your sales grow, so does your Debtor Finance facility.
- You get 80% of invoice value immediately, with the balance as your debtors settle their accounts with your bank.
What does it cost?
There are two primary costs associated with Debtor Finance.
- Interest payable on actual funds drawn from your facility. This is calculated daily and paid monthly in arrears – much like an overdraft facility.
- An administration fee, calculated on the value of invoices you submit for funding.
We’re told that “other fees and charges may apply”.
For More Information
As I said, a banker who’ll get out of their office to come to us is worth knowing so we’re happy to suggest you talk to Marissa Robbins, Business Development Manager at BoQ on 0408 719 555.
