Every business needs a steady cash flow to keep their operations running smoothly. Once the outstanding invoices start stacking up, and the cash flow slows down, every aspect of your business can suffer greatly.
The fact is that even the most successful businesses face a crisis if they have to wait up to 90 days for the invoices to be paid. As a business owner, you can suddenly find yourself in a hopeless situation, wondering if your business will even pull through.
When this happens, you are forced to turn to the banks and opt for the worst possible solution – an overdraft. But, an overdraft is more trouble than the money you loaned is worth. This solution has multiple drawbacks. It is too risky, since you need to supply your assets or business equity as security. It’s also quite disappointing, having to borrow money that you have already earned but can’t get a hold of.
But, there is a simple, low-risk solution to this problem – debtor financing. Let’s see how it can save your business in just 24 hours.
How It Works
Debtor financing is a service that restores and stabilizes your cash flow by allowing you to access the funds owed to you by your debtors, before they even pay up. To be more precise, it allows you to access your hard-earned money within 24 to 48 hours.
Instead of waiting 30-90 days for your clients to pay you for the goods or services they bought from you, now you can gain access to 80% of those funds right away, and the remainder (the small fee you agreed on), once the client had paid up.
This way, the funds are turned into working capital in around 24 hours, and your cash flow is restored to normal, allowing your business to function like a well-oiled machine and allowing you to plan for growth.
Types Of Debtor Financing
There are three types of debtor financing services:
1. Disclosed Financing – In this type, the debtor is informed that they should pay their debt directly to the lender. This is a full service that offers debt collection, sales ledger administration and reporting. The lender covers the debt with their collection service, although you can manage the debt collection if you choose to.
2. Confidential Financing – Also called invoice discounting, in this type of financing, the debtor doesn’t know abut the existence of a third party. Moreover, the business has their own collection or credit management system.
3. Selective Financing – In this type of debtor financing, the businesses using the service usually don’t need debtor financing for all invoices. They only need it to fund some larger purchases or launch new projects. This way, they can limit the amount taken to control the interest.
Benefits Of Debtor Financing
Steady Cash Flow – Having a steady cash flow that you can always rely on doesn’t have to be something you just dream about. Even though you offer your clients credit, you can still enjoy financial stability. Debtor financing turns unpaid invoices straight into your operating budget, and it allows you to use that money right away or save it for future plans.
Edge Over Competition – A lot of businesses are still reluctant to use debtor financing because they don’t know a lot about the service. So, leveraging it for your business will put you ahead of the competition. Wit debtor financing, you will not only be able to plan growth and develop your business more easily; but also get better negotiating power when making deals with the suppliers.
Protected Assets – Should you choose the alternative, which is an overdraft from a bank, you will be forced to supply some of your assets or business equity as security and possibly sacrifice them. With debtor financing, you don’t have to worry about the possibility of losing your family home or your business. The service doesn’t require any security because it is not a loan.
No Discounts – Another solution some business owners resort to in order to get their money right away is offering discounts for their goods and services. Of course, this solution is flawed since you have to give up a certain amount of earnings. Debtor financing allows you to get 80% of your money right away without offering any discounts, and you get the rest as soon as the customer pays up.
Cost-Effective – While an overdraft forces you to risk your assets, and discounts leave you earning less than you would in normal circumstances, debtor financing is a cost-effective solution tailored to fit your needs. As much as 80% of your invoice is paid to you right away, and the lender deducts a small fee agreed upon from the remaining 20% when the debtor pays up.
Available To Most Businesses – Don’t worry if you are running a small business – you can just as well apply for debtor financing. In fact, businesses of all scopes, industries and sizes can benefit from this service. No matter how many people you’re employing and what type of services and products you are selling, the service adapts to your particular situation.
Flexible Limit – Debtor financing adjusts to your growth, which means that your limit grows along with your sales. Unlike an overdraft that limits the amount of money available to you to the value of the security you supply, debtor financing depends solely on the amount of the invoices. This means that, if your business grows, the limit grows with it.
With so many advantages, debtor financing is rapidly becoming the leading solution to cash flow problems for small and middle-sized businesses. And now you know how you can leverage this service to put your business back on track within 24 hours, without having to put any of your assets at risk.
Simply make use of the money you earned yourself, and enjoy the benefits while your business thrives.
If you’re interested in finding the best deal for your business, click here to schedule a free consultation with our experts at CVG Finance, and we’ll make sure you get the best deal possible.