Debtor finance is a dynamic working capital finance solution for your clients. It can help them to significantly grow their business and improve cash flow. We are often asked by brokers what to look for in determining if debtor finance would suit their client. First of all, it is important to maintain a great level of communication with your clients. Take the time to sit down and talk to them about how their business is going and recognise their weak points, so that you can be in a good position to assist. We have put together the following indicators to help you to spot debtor finance opportunities in your client base.
1. Rapid business growth
Is your client’s business going through a period of rapid growth? As exciting as an increase in sales is for a small business, it can cause cash flow issues as increased stock and wages commitments may need to be covered before customer payments are received. Debtor finance is linked to sales, which closely ties the working capital available to a business’s cash requirements. This can help sustain growth and ensure that clients are not turning down business opportunities because they can’t fund them.
2. Seasonal ups and downs
Does your client operate a seasonal business? A small business that sells beach products may experience a high demand during the lead up to the hot peak seasons and then slow down during the colder seasons. These seasonal businesses must ensure that cash availability matches demand during peak periods and that cash can be brought forward during the slower times when debtor days might stretch out and cause working capital issues. Debtor finance helps to smooth out these cash flow peaks and troughs.
3. Urgent funding required
Traditional bank financing can take months to obtain. Is your client in urgent need of funding and too busy to spend their valuable time seeking negotiating with a bank? Debtor finance facilities are typically approved within 48 hours with the funding available within days rather than weeks and months, making it the perfect vehicle to support growth plans. If your clients are turning away growth opportunities because they’ve exceeded existing funding lines, debtor finance ensures that sufficient working capital is available to fund increased sales.
4. Reluctant to use property as security
Many clients are reluctant to take out an overdraft as it means putting their personal or commercial property up as security. Debtor finance facilities do not require real estate security. This also means that brokers can use these personal real estate assets for other wealth-creating options for clients.
5. No trading history
A huge roadblock for small businesses, and in particular start-ups, is that no matter how great the business idea, traditional modes of funding require a year or more of trading history to qualify for funding. If your client is a new business with increasing sales and a great order pipeline, then debtor finance will help them realise the value tied up in their receivables.
6. MBO and acquisition goals
A debtor finance facility can provide an employee with the financial power to buy out the existing owners. Similarly, if a client is looking to purchase a competitor, debtor finance can generate funding against the receivables of the target entity, providing extra liquidity and a reliable cash flow while the new business is integrated.
7. Succession planning
If the incoming owner of a family or small business doesn’t have enough equity to access finance, using debtor finance means that the business can be funded by its own assets.
8. Trading condition changes
If a client loses a major customer or has an unexpected shutdown or bad debt that can place immediate pressure on cash flow which can be relieved by debtor finance generating funds against the outstanding receivables.. This will buy your client some time to develop a plan to keep trading.
9. Opportunities to import and export
Debtor finance, and more specifically trade finance, can help fund the next shipment, with 24-hour availability of drawdowns to help your clients lock in favourable exchange rates. For an importer, it guarantees funding to pay suppliers, and for an exporter, it offers working capital so the business can trade comfortably until the customer pays for the goods or services.
10. Wages and expenses
Many businesses have significant wage and expense bill that needs to be paid weekly, but their clients may be paying on 60 to 90 day terms. Debtor finance will ensure that the working capital is available to pay your clients wages and expense bills weekly
11. When a marriage ends, the business doesn’t need to
A divorce or family feud can have a serious impact on a business. Fortunately, debtor finance offers your clients the opportunity for business funding to be linked purely to business assets, rather than linked to personal property that may be involved in divorce settlements.