Advivo defines debtor finance and explains why it can be a beneficial option for small businesses looking to manage their cash flow more effectively.
Managing your cash flow and staying on top of financial obligations – especially before and after the end of the financial year – can be difficult. A potential solution for easing the financial burden of this time of year is debtor financing. Keep reading to find out what debtor financing is, and how it can be a useful option for your small business in Brisbane.
What is Debtor Finance?
Debtor finance involves using unpaid invoices or accounts receivable as collateral to access immediate cash. Therefore, instead of having to wait for customers to pay their invoices, you can sell them to a debtor finance provider, who will advance a signification portion of the invoice value upfront. This additional cash flow can be useful in times when finances are tight.
There are several ways that implementing debtor finance could help your business, including…
Accelerated Cash Flow
One reason for utilising debtor finance is its ability to accelerate your cash flow, meaning you can cover costs more easily. This is especially useful during the end of financial year when you must meet financial obligations such as paying suppliers and covering outstanding expenses. This accelerated cash flow will help you start out the new financial year strong. If you want more advice for navigating your finances during the new financial year, contact Advivo – the experts in small business accounting in Brisbane.
Flexibility
If you are one of Australia’s over 1.5 million SMEs, you’re likely always looking for new ways to grow and expand your business. Debtor finance is a flexible and fast way to get access to funds that can be used as working capital. This means your business can more easily respond to opportunities for growth and invest in new projects without having to wait for clients to pay their invoices. It also allows you to adapt more easily to changing market conditions and manage unexpected expenses.
Reduced Bad Debt and Credit Risk
Having immediate access to funds allows you to cover your business’s financial obligations – such as a hefty tax payment. Using debtor finance can also provide credit risk assessment services, enabling businesses to make informed decisions about extending credit to customers. It can also minimise your risk of default by transferring the responsibility of collecting outstanding payments to your finance provider.
Business Growth
Rapidly acquiring a substantial influx of new business can lead to an increase in expenses, potentially straining your existing cost structure and resources. Debtor finance is an ideal tool to use to fund rapidly growing businesses, cover peak seasonal funding requirements and shorter term top-up finance for special projects. Thus, it is a useful tool for businesses looking to accelerate and keep up with their growth.
