Understanding Debtor Finance

Debtor finance is a finance solution available to businesses that allows for both coverage on cash flow shortages and smoother cash flow, generally. While this is a very common business finance solution, many business owners are not sure of what debtor finance is and how it works.

Explaining Debtor Finance

Debtor finance (also commonly known as invoice finance or invoice factoring) is a business finance option that provides funding and finance based on your Accounts receivables. Lenders and financiers, like Fifo Capital, provide working capital to your business based on the value of your outstanding invoices. 

As you’re no doubt aware, when businesses sell products or services, especially to other businesses, they typically offer invoice payment terms to give their clients and customers a sustained period of time to pay for the invoice. This is often between 7 to 90 days.

While it is more favourable to your customers and clients to offer invoice payment terms, it creates a gap in your cash flow between the dispatch of goods and services and the invoice being paid. This in turn can lead to a working capital gap due to the unpredictable cash flow cycle. When you multiply this across your many customers – this can become a serious problem with managing cash flow and working capital.

How does Debtor Finance work?

When you have a Fifo Capital debtor finance facility, you simply upload your outstanding invoices to the Fifo Capital system. We then review the selected invoices (it can be one, two or as many as you like), and then make an advance payment to you based on the total value of those invoices. The advance on your outstanding invoices paid upfront by Fifo Capital is up to 90% – with the remaining % (minus any fees) paid once your client has paid the invoice.

One of the most advantageous factors to using Debtor finance for working capital is the speed. Your unpaid invoices can be settled into your account often within 4 hours – giving your business the cash flow strength it needs to continue trading and growing.

Who is Debtor Finance best for?

Debtor finance can be a great cash flow smoothing option for businesses that sell on credit or trade terms. That means, any business that issues invoices at the point of sale and collects payment at least 7 days or more from the date of the sale/transaction. Debtor finance is best for businesses that engage in trade and sales with other businesses, and not consumers or direct to the public.

Why choose Fifo Capital for your business Debtor Finance?

By completing the form below, you can request a call from one of our Business Finance Specialists. In this call, we’ll seek to understand how your business operates and what the most suitable type of business finance will be for your circumstance – whether it’s invoice finance, supply chain finance, trade finance or even solutions we don’t offer – such as  a chattel mortgage or business loan.

Businesses aren’t cut from the same cloth, and neither are their working capital and financial positions. That’s why here at Fifo Capital, we create a bespoke solution for you that fits your business requirements. When you partner with Fifo Capital, you have the assurance that we’re by your side.

Complete the form below for a no-obligation, finance discovery call with our business Finance Specialists today.

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