Effective cash flow management is critical to business success. But slow-paying customers, tightening supplier conditions and inflexible bank terms can all affect cash flow. Even thriving businesses keen to capitalise on growth opportunities can face roadblocks due to cash flow fluctuations.
Many businesses are turning to debtor finance as a strategic financial solution. Whether you’re a commercial finance broker looking for the best deal for your clients or a business owner facing the daily challenge of managing cash flow, you understand the common challenges. Perhaps you’ve even explored debtor finance products such as factoring and invoice discounting but want to know more about leveraging outstanding invoices to access efficient working capital. In this article, we explore why more and more businesses are turning to this effective financial solution.
Common cash flow challenges
Businesses today face a range of cash flow challenges. Whether it’s customers delaying payments, renegotiating longer terms, or suppliers shortening or eliminating payment terms, Octet’s Director Working Capital Solutions Dan Verdon has heard it all. “The current challenging economic conditions are putting a strain on cash flow, but many business owners hesitate to address these critical issues early. That’s a mistake.”
Even thriving businesses are feeling the pinch from their traditional finance partners. “The banks and larger lenders are becoming slower and less responsive when providing loans that support business growth,” Dan says.
“Dealing with changing account managers and lengthy processing times is really frustrating for businesses in various stages of growth. Debtor finance is a reliable alternative to a traditional bank loan, offering businesses confidence in accessing working capital quickly and easily.”
Do any of these cash flow challenges affect you?
- late-paying customers
- restrictive bank conditions
- extended payment terms.
Debtor finance could be the answer.
Take control of your cash flow with debtor finance
You might have heard the terms factoring and invoice discounting, invoice financing or invoice funding. But what do they actually mean?
They’re all broadly debtor finance solutions. Invoice factoring involves a business selling its accounts receivable to a financier, who gives them an upfront payment (up to 85% of the invoice value). The financier collects payments from the business’ clients, takes a small fee and passes the remaining funds onto the company. Invoice discounting is similar but with a critical difference — it’s the business, not the financier, that collects the debts.
The terms invoice factoring and invoice discounting are used less these days, as innovative finance providers like Octet offer more tailored debtor finance solutions.
These facilities use a major asset already in the business — the unpaid customer invoices — to sustainably meet its cash flow requirements. Debtor finance is tailored for growth and can reduce cash flow risk.
Joe advises his business clients to set up a debtor finance facility before they need it. “There is a small service fee to have the facility there, but this fee is upfront and predictable, and you only pay interest when you draw funds.”
While debtor finance helps mitigate cash flow gaps and maintain stability during volatile periods, Dan says this type of finance isn’t just for businesses facing challenges. “Debtor finance is used by many thriving, growing businesses looking for a line of credit to appropriately manage their cash flow.”
Businesses use debtor finance to:
- enhance liquidity to meet operational needs and explore growth opportunities
- take advantage of a tailored solution to suit their needs and cash flow cycles
- streamline collections and administrative tasks
- unlock potential for expansion and take on new projects
- access expertise and tools for efficient credit control and debtor management.
Why brokers and businesses choose Octet for debtor finance
Dan says businesses in a range of industries access debtor finance to help grow their business. “Common industries we service include labour-hire, food and beverage, manufacturing and wholesale. But whatever industry you’re in, if you’re a B2B business, debtor finance can work for you.”
While many business owners are considering their financing options, brokers are also exploring solutions for their clients. Brokers can play a crucial role in helping businesses navigate these cash flow challenges and make informed financial decisions.
“Whether you’re a business owner, a broker or an accountant, if you’re considering debtor finance, take the time to assess the business’s financial position, cash flow forecasts and growth objectives before speaking with a financier.
“Our advice to business owners and brokers is to partner with reputable providers. At Octet, we offer a broad range of working capital solutions tailored to each business.”
Businesses that access Debtor Finance through Octet:
- get up to 85% of business invoices as a cash advance
- can access funds without personal asset security
- enjoy the flexibility of their debtor finance facility growing as their receivables grow
- can seamlessly integrate the facility with their existing accounting software such as Xero and MYOB AccountRight.
Are you a commercial finance broker? Simply refer your client, and we’ll handle the rest.
Tailored debtor finance solutions for every business
Octet’s Debtor Finance solutions are designed for businesses to meet cash flow challenges, better manage fluctuations, capitalise on opportunities and grow. Whether you’re a business owner ready to explore their finance options or a broker who wants to see their client’s business soar, debtor finance could be the solution for you. Get in touch today.
Disclaimer: The above comments are only our views and should not be construed as advice. You should act using your own information and judgment. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgment as at the date of publication and are subject to change without notice.
