Debtor Finance is also known as invoice discounting; invoice factoring; partnership factoring; disclosed invoice discounting and undisclosed invoice discounting.
What is Debtor Finance?
What these terms mean is that if your business sells on credit terms to your customers, you can leverage against these customers to obtain working capital, i.e. when you invoice a business customer for goods or services provided, this debt is an asset of your business and you can borrow against it.
An invoice factoring company/lender will lend sometimes up to 100% of your invoice (generally 80%), and provide funds to your business on the day the invoice to your customer is generated. When your customer pays the debt, the remaining 20%, less the invoice factoring company's charges, is paid to you.
What can I use Debtor Finance for?
- All my customers (Total Turnover)
- Selective or Single customers
- Single invoices
- Progress payments (E.g. Construction Loans)
How does Export Debtor Finance differ to Domestic Debtor Finance?
Not all lenders have an appetite for trade finance or the expertise to control the administration of export finance. Some lenders will insist on credit insurance for your export debtors whilst others will not. The advance rate and price you pay will vary greatly from one invoice factoring company to another.
What are the Charges involved in Debtor Financing?
- Service Charge - A fee charged on the value of the factoring invoices.
- Interest - Charged on the funds drawn down.
- Application Fee - A fee charged either on the facility or on the take-on value of the invoices.
- The rates charged will depend on volume, the level of service provided by the invoice factoring company & the assessed risk.
Of course, negotiating the optimum deal is also important. That's why you need Fox Finance Group with the necessary experience and knowledge of the industry to negotiate the most suitable and cost-effective solution.
Will my Customer know I am using Debtor Finance?
This is the difference between an Undisclosed (Invoice Discounting) or Disclosed (Invoice Factoring) Facility. Your customers will not know about you factoring your invoices if you have an undisclosed invoice discounting facility, whereas they will know if you have a disclosed invoice factoring facility.
Several factors will influence whether the debtor finance facility is disclosed or undisclosed.
- Strength of your business
- Contractual nature of your terms of trading
- Type of industry you are in
- The spread of your customer base
Can an invoice factoring company manage my sales ledger & perform credit control for me?
Yes. Plus the lenders we select will agree with you the manner in which customers are contacted.
Is there a minimum amount I can borrow?
Generally, debtor finance does not become cost-effective for amounts less than $100,000.
Do I need to have property for security?
Do I need to give a Director's Guarantee?
It is usual to provide a director's guarantee to support the debtor invoice finance facility. However, you must be aware of the type of director's guarantee asked for.Some lenders ask for unlimited director's guarantee whilst other lenders will only ask for an indemnity guarantee for fraud and performance risk.
Do you know what type of director's guarantee you are being asked to provide?
Can I be a start-up company?
I've looked at invoice discounting before, but my application stalled?
Don't be discouraged... over the past five years this space has become much more competitive and there are many more funders available. These funders all have specific criteria and appetites for different types of industries, operations and business structures.
At Fox Finance Group we structure you submission to ensure that we provide the right facility from the right lender in the right structure, first time.