Debtor Finance - By: Priyon Susan

What is Debtor Finance?
In simplest terms, a debtor financier is anyone who transacts business for someone else. Debtor Finance or Receivables finance (also known as factoring, cash flow finance or invoice discounting) has been a major component of business capital raising since the 1700s. Since then it has survived economic booms, recessions, and depressions. Nowadays, businesses often have misconceptions about, or overlook completely, how they can benefit from Debtor Finance. One of these misunderstandings is that only a financially weak company would factor their book debts.

While that occasionally happens, Debtor Finance is more often than not done by companies who are focused on growth. These are the businesses that need improved cash flow so that they can receive discounts from suppliers, prepare their inventory for peak seasons, upgrade equipment, and produce and sell more goods or services.

Traditionally, a debtor who takes a long time to pay an invoice causes the business to lose money due to financing, staff, and overdraft. Debtor Finance can be a solution to this issue. Customers can use Debtor Finance on their accounts receivable in order to avoid incurring debt. When they do this they do not borrow money. The book debts of a company are bought by the Debtor Finance company. The Debtor Finance company receives a discount. The other company gets the cash from the selling of the accounts receivable. This allows them to be paid quickly and avoid the problems of a lengthy invoice.

Debtor Finance can be beneficial to any company that operates using accounts receivables, whether they are a wholesaler, manufacturer, distributor, or in the service industry. Companies that are new, have a negative net worth, or are growth oriented will be helped the most by Debtor Finance. This is because the cash from it can end losses from operating, allow prompt payment of creditors, or be used to increase sales and production.

Business Challenges
Recession. Cash flow crisis. Small business bankruptcies. Interest hikes. Words and phrases like these are common in the current economic environment. Now is a stressful time for a business owner. Cash flow is negatively affected by these trends. It is also hurt, no matter the companies size, by restrictive lending policies, slow payments from debtors, and the payment pressures from creditors.

When cash flow is unable to provide for growth, business owners struggle to raise working capital. One choice is to turn to a bank, but financial institutions are only willing to lend against the security found in a bricks and mortar. Another possible solution is to take on a partner who will bring capital in exchange for equity and partial control of the business.

If neither of these options is appealing, or possible, Debtor Finance can be used to convert credit sales into cash and provide a business with instant capital.

About the Author

To find out more about Debt Factoring Australia visit Cashflow Advantage

Article Directory Source: http://www.articlerich.com/profile/Priyon-Susan/207439

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