Debtor financing turns unpaid invoices into new business opportunities, which is exactly why more and more businesses are turning to this solution. But, what exactly is debtor financing, and how does it help your business?
Here are 7 things about debtor financing that can save your business’ cash flow problems and put you back on track.
1. It Turns Invoices Into Capital
The workings of debtor financing are simple – it turns your unpaid invoices into working capital in 24 to 48 hours. A lot of businesses are forced to offer credit to their customers and let them pay for goods or services within 60 or even 90 days. Meanwhile, you are left waiting for the money you have rightfully earned.
A debtor financing service helps you reassume financial security by giving you access to 80% of the funds owed to you immediately, and giving you the remainder once the invoice is paid by the debtor. That way, your money is turned into working capital right away, and you can manage it as you see fit.
2. No Security Is Needed
The traditional way of dealing with the financial issues that are beyond your control is getting an overdraft from the bank. However, this solution is not only frustrating but risky as well. With the overdraft, you are basically borrowing money you already have in unpaid invoices; while your own money is still in your debtors’ hands. Moreover, you need to take a substantial risk, since you will have to supply your assets as security, and only take funds in the value of that security.
Debtor financing lets you gain access to the sum you already earned without taking additional risks. Since this is not a loan, you will not have to worry about giving up your assets or your business equity.
3. It Is Growth-Driven
One of the greatest advantages of debtor financing is that it’s flexible and doesn’t limit your business. In fact, the amount of money grows as you grow. You see, with an overdraft you depend on the bank and the assets you supply as security. All you can do is sit, wait and hope that the bank will extend your overdraft.
Let’s assume your business grows, but you still offer credit to your customers. Your invoices will only become bigger and your cash flow will grow worse. However, with debtor financing, your invoices increasing in amount is good news. That means your limit grows along with your sales, and you don’t have to worry about the risk because there’s nothing to lose.
4. Clients Don’t Need To Know
Debtor financing is still a new concept, even though its popularity is growing rapidly. Since business owners don’t know a lot about the facility, they are often worried that their reputation will be ruined once their clients find out they are using debtor financing. But, it’s a misconception that businesses using this facility are having financial problems. They are simply making a sound decision and taking control of their cash flow.
Besides, your clients never need to find out that you are getting the invoices paid through debtor financing. One of the types of this facility is undisclosed debtor financing. If you opt for this facility, your clients will never know they are paying your lenders, and you will get access to the money owed to you right away.
5. It Is Tailored To Fit Your Needs
Another reason why people are still suspicious about debtor financing is that they think it is expensive. However, this cannot be further from the truth; the service is actually really cost-effective.
So, here’s how debtor financing works. Once you sell goods to your customer, you will get 80% of the invoice paid back to you in about 24 hours. The rest of the debt, minus a small fee, is paid back to you as soon as the debtor pays the total amount of the invoice. Most of the debtor financing services offer flexible terms tailored to the specific needs of your business.
6. Most Organisations Can Benefit From It
Another great benefit of debtor financing is that organisations of any size, scope and industry can apply for the facility. This means that it doesn’t matter what you’re selling, how much you’re earning, or how many people work for you – you will be able to benefit from debtor financing.
Since the service is flexible to your financial situation and the amount of your invoices, it means that it adapts to any business and any circumstances you may be in. Any business that wants to achieve and maintain financial security through gaining immediate access to the money they earned can apply. But, the service is also excellent for start-ups struggling with other expenses, and those that can’t secure other sources of income.
7. It Opens New Opportunities
Debtor financing doesn’t just solve your short-term problems, it restores your financial stability and your cash flow, and allows you to plan for growth. Many businesses struggling with unpaid invoices have to turn down business opportunities, offer discounts, and get into debt themselves. Debtor financing prevents all that from happening, and helps you plan a brighter future for your company.
With a steady, reliable cash flow, you can focus on more important things. But, not only that – with a steady cash flow, you have a better negotiating power. You will be able to get better trading terms with suppliers, and take advantage of discounts for prompt payments.
With so many benefits of debtor financing, it’s no wonder that more and more businesses are turning to this facility. So, if your business is also struggling with unpaid invoices, debtor financing is, without a doubt, the right decision for you.
Click here to schedule a free consultation with CVG Finance, and let us negotiate on your behalf and get you the best possible deal. Our services are always 100% free for our clients, so you don’t lose anything.