In the dynamic commercial landscape of regional Australia, a company operating in industrial insulation, cladding and roofing was on the brink of transformation. The company’s comprehensive service portfolio catered to a diverse range of industries, specialising in thermal insulation and fabrication. However, to stay competitive and meet the growing demands of their clientele, they needed to expand their operations and enhance their capabilities.
The key to unlocking their potential lay in securing adequate working capital finance. As such, the company sought a partnership with Octet to support their growth ambitions.
Boosting cash flow with debtor finance
Working with Octet’s Director of Working Capital Solutions, Dan Verdon, they identified debtor finance as a crucial component of their financial strategy that provided the company with the liquidity needed to manage their cash flow effectively. By leveraging their accounts receivable, they converted outstanding invoices into immediate working capital. This influx of cash enabled them to meet day-to-day operational expenses without delay, ensuring the smooth running of their business.
“The Debtor Finance facility was a game-changer,” said Dan. “It enabled the company to bridge the gap between invoicing and payment, reducing the stress associated with cash flow management.”
The initial requirement was for a $1.4m Debtor Finance facility. With steady cash inflow, the company could now focus on scaling their operations rather than worrying about payment delays from clients. It allowed them to tender for larger jobs, which triggered Octet to apply an immediate facility increase to $2.0m.
Empowering expansion through trade finance
Trade finance complemented debtor finance by addressing the specific needs of purchasing raw materials and equipment from suppliers. The $100,000 Trade Finance facility provided the necessary funds to secure critical inventory and equipment on favourable terms. This allowed the company to maintain a steady supply chain and meet the demands of their growing project pipeline.
By utilising trade finance, the business could negotiate better deals with suppliers, taking advantage of bulk purchasing and early payment discounts. This not only reduced costs but also ensured they had the materials needed to deliver projects on time and to the highest standards.
Dan states, “The client was particularly pleased with the unique feature Octet offered that enabled them to pay their current ATO debt through their trade facility.”
New investments in technology and equipment
One of the significant ways the company leveraged their working capital funding was through investment in state-of-the-art equipment and technology upgrades. The infusion of funds allowed them to purchase advanced machinery that enhanced productivity, efficiency, and safety. With cutting-edge tools at their disposal, the team could tackle complex projects with greater precision and speed.
These technological advancements positioned the company as a leader in their field, enabling them to deliver superior results to their clients. The ability to stay ahead of industry trends and continuously improve their service offerings became a competitive advantage.
Expanding the workforce and service offerings
Financing also played a pivotal role in expanding the company’s workforce. With the financial flexibility provided by debtor and trade finance, they were able to hire skilled professionals across various disciplines. The expansion of their team allowed them to take on more projects simultaneously, increasing their service capacity and ability to meet client demands.
Moreover, as market dynamics evolved, the company recognised the need to diversify their service offerings. The availability of working capital enabled them to explore new avenues and introduce additional services, such as asbestos removal. This diversification not only opened up new revenue streams but also made the company more resilient to market fluctuations.
Pursuing growth opportunities
The strategic use of working capital finance facilitated the company’s growth ambitions. With enhanced cash flow, upgraded equipment, and an expanded workforce, they were well-positioned to pursue larger and more lucrative projects. Their ability to deliver comprehensive solutions across various industries attracted new clients and strengthened relationships with existing ones.
Overall, the application of a Debtor Finance facility and a Trade Finance facility empowered the company to overcome financial constraints and drive business growth. By leveraging these financing options, they achieved operational excellence, expanded their service offerings, and positioned themselves as a dynamic player in the industrial sector.
“The story of their transformation serves as a testament to the power of working capital finance in unlocking a business’s full potential,” concludes Dan.
Grow your business with Octet
Via our Referral Partner Program Octet empowers businesses across a range of industries, including construction and engineering, manufacturing, transport and labour hire, offering innovative debtor finance and trade finance working capital solutions.
Speak to our team of working capital specialists to see how we can power your business growth today.
Disclaimer: These comments are only our views and should not be construed as advice. You should act using your own information and judgment. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgment as at the date of publication and are subject to change without notice.
Maintaining a healthy cash flow in an unpredictable economic climate is crucial for business resilience. Doing so ensures your business can meet its financial obligations and seize growth opportunities, but improving cash flow in business can be a challenge in many industries.
In this article, we provide practical information on business finance to improve your cash flow, helping your company not only survive but thrive in these more difficult economic conditions.
How to control cash flow in business
Cash flow is the lifeblood of any business, representing the movement of money in and out of the company.
Sam Ralton, Octet’s Director of Working Capital Solutions, VIC, TAS, SA, explains, “The importance of cash flow is the ability to pay for goods and services when they fall due. Profit is a snapshot of how much money the company’s earned after expenses, but that doesn’t mean that the cash flow is in a healthy position.”
In fact, many companies confuse high profit with good cash flow. While the two are somewhat intertwined, improving cash flow in business is much more about forward thinking, planning and strategy.
“In a growing business, cash flow management gets increasingly harder because although you may have good margins and you’re making a profit, there’s a lag in time before that money is available to you, and therefore the cash flow runway is restricted,” Sam explains.
Cash flow runways and forecasts
A cash flow runway is the period a business can operate before it runs out of money. Having a clear understanding of your cash flow runway helps you plan and ensures the business can cover its expenses for a set period.
Cash flow forecasts are equally important as they predict future cash inflows and outflows, allowing businesses to prepare for potential shortfalls. “Cash flow forecasts are a good tool and indicator of when your business can pull certain growth levers or, conversely, restrict unnecessary spend,” says Sam. “They’re essential to ensure you don’t spend money today that you may need in the near future.”
So, what are some practical strategies for managing your business cash flow opportunities and issues?
6 simple strategies for improving cash flow in business
Review pricing structures: Ensure pricing covers your costs and desired profit margins. Regularly review and adjust prices to reflect market conditions.
Increase sales: Implement more layered brand marketing strategies and explore new markets and product verticals to boost revenue.
Control expenses: Regularly review expenses to identify and cut unnecessary costs.
Faster payment collection: Implement stricter payment terms and follow up on overdue invoices promptly using appropriate accounting software.
Inventory management: Utilise technology to maintain optimal inventory levels, reduce any holding costs and free up cash.
Supply chain management: Negotiate better terms with suppliers to improve cash flow timings. Where it makes sense for your business model, early payments can sometimes create opportunities to discuss discounts with appropriate suppliers.
Debtor finance provides an instant cash injection by unlocking funds tied up in unpaid invoices. This liquidity helps cover operational expenses, supplier payments and even fund growth opportunities.
Sam advises, “Debtor finance can give you the cash flow required upfront. So if you need funds earlier, you’ve got the certainty of borrowing against your invoices rather than waiting for those payments to arrive under the original terms.”
Businesses that access debtor finance can execute more effective financial plans by better managing cash flow fluctuations and the uncertainty associated with extended payment terms or delayed payments.
Unlike traditional loans, debtor finance requires no personal assets as security. This flexibility allows you to access funds when you need them, without risking valuable assets.
Trade Finance cash flow benefits
Trade finance offers substantial cash flow benefits by providing a tailored line of credit that bridges the gap between purchasing and selling goods. This funding solution ensures that businesses do not have to tie up their cash flow in inventory that takes weeks to arrive, process and sell.
By introducing a financial partner, such as Octet, into the supply chain, businesses can access funds to pay suppliers immediately, whether they are local or overseas. This enables the business to maintain healthy cash flow, as they can repay the credit facility over time rather than having their working capital tied up in these often lengthy transactions.
Because you can set a competitive exchange rate for the transaction upfront, trade finance can also safeguard against currency fluctuations. This supports smoother and more predictable financial management and helps increase your business’ purchasing power.
Where to go for business cash flow solutions
Implementingeffective cash flow management strategies and leveragingworking capital finance products can help you confidently navigate economic uncertainties. But staying on top of business cash flow and utilising these strategies and products can be a complex exercise, even for the most experienced of operators.
That’s why seeking professional advice is often a good idea. Financial planners, accountants, commercial finance brokers and business finance experts can all provide valuable insights and tailored solutions. For earlier growth stage businesses, it’s really important to consult widely in order to find the most suitable cash flow advice for your unique business circumstances.
Keep your cash flowing
Improving cash flow is essential for business stability and growth. At Octet, we’re here to support your business at every stage, offering expertise and financial solutions tailored to your needs. Our working capital products are designed to help businesses in all industries manage cash flow effectively.
Our team can provide guidance on leveraging innovative supply chain finance solutions and tools to maintain consistent cash flow, crucial for sustaining and growing your business in these challenging conditions.
Contact us today for more information on how Octet can help your business thrive.
Disclaimer: The following comments are only our views and should not be construed as advice. You should act using your own information and judgment. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgment as at the date of publication and are subject to change without notice.
Securing the right financial support from major banks is a common challenge for many businesses, especially those in industries requiring agility and tailored solutions. Traditional lenders often don’t address the specific needs and pressure points of these more complex business groups. Rising fees, rigid loan terms, and a lack of flexibility can stifle growth and operational efficiency, leaving businesses in desperate need of a more tailored approach to financing. This was the situation faced by this business consortium that operates across multiple industries, until they found a comprehensive working capital finance solution with Octet.
Struggling with financial constraints due to complexities of the business
In 2022, the directors of an interconnected group of companies, working across multiple industries, faced a daunting challenge. As new majority owners, they inherited several businesses struggling with cash flow issues and strained lender relationships. The relationship with their primary bank lender had soured, and rising fees from non-bank lenders compounded their financial woes. Two of their businesses, operating in the meat industry, demanded quick, reliable funding solutions, but their existing financial arrangements were not meeting their unique requirements.
The primary goal of the consortium was to gain more buying power and growth opportunities. They needed a financier who understood their business’ pressure points and could provide a comprehensive, tailored financing solution. Their business operations, particularly in meat wholesale, required a flexible approach due to the perishable nature of the products, which typically operate on shorter financing terms. Through their commercial finance broker, the directors sought a lender who could consolidate their multiple financing needs into a single, cohesive package.
Octet’s innovative supply chain finance: A flexible cash flow strategy
Enter Octet, with a bespoke working solution that addressed all of the business needs across the consortium. Initially working on a financing arrangement for one of the consortium’s operations, Octet was able to extend this to provide a comprehensive financing package that included a $4.25m debtor finance limit, $2m trade finance limit, and a $600k asset finance facility. This all-encompassing approach was designed to alleviate the pressures faced by the group.
Octet’s solution enabled one of the business directors to release the mortgage held over their home and terminate their trade facility with the bank. Additionally, by bundling all their financing needs into one package with Octet, the business was able to pay out, or reduce, the other remaining facilities with multiple non-bank lenders.
One of the most significant aspects of Octet’s solution was its tailored approach to the meat wholesale sector. Despite the industry’s challenging financing conditions due to the fast turnover of the products, Octet crafted a financing plan that provided the business with much-needed speed to market. This agility allowed the directors to secure supplier discounts by ensuring quicker and more regular payments, setting them apart from competitors.
Immediate and long-term benefits for the business
The impact of Octet’s financing solution was immediate and transformative. Within the first 24 hours of finalising the facility, the company was able to disburse $1.4 million in trade payments to their major suppliers. This rapid injection of working capital not only stabilised their operations but also enhanced their purchasing power.
The benefits extended beyond immediate financial relief. The new financing structure allowed the business to focus on strategic business planning and growth, rather than constantly managing cash flow issues. The agility provided by Octet’s tailored solution enabled the business to purchase more stock across different operations, breaking free from the constraints of their previous non-aligned terms.
With Octet’s comprehensive support, the company gained the financial flexibility and stability needed to thrive in the competitive meat industry. The partnership with Octet not only resolved their immediate challenges but also positioned the group of interconnected companies for sustainable growth and success, demonstrating how a well-structured and flexible financial partnership can turn around business fortunes and set a course for future prosperity.
Grow your business with Octet
Via our Referral Partner Program Octet empowers businesses across a range of industries, including food and beverage, manufacturing and transport, offering innovative Debtor Finance and Trade Finance working capital solutions.
Speak to our team of working capital specialists to see how we can power your business growth today.
Disclaimer: These comments are only our views and should not be construed as advice. You should act using your own information and judgment. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgment as at the date of publication and are subject to change without notice.
Effective cash flow management is critical to business success. But slow-paying customers, tightening supplier conditions and inflexible bank terms can all affect cash flow. Even thriving businesses keen to capitalise on growth opportunities can face roadblocks due to cash flow fluctuations.
Many businesses are turning to debtor finance as a strategic financial solution. Whether you’re a commercial finance broker looking for the best deal for your clients or a business owner facing the daily challenge of managing cash flow, you understand the common challenges. Perhaps you’ve even explored debtor finance products such as factoring and invoice discounting but want to know more about leveraging outstanding invoices to access efficient working capital. In this article, we explore why more and more businesses are turning to this effective financial solution.
Common cash flow challenges
Businesses today face a range of cash flow challenges. Whether it’s customers delaying payments, renegotiating longer terms, or suppliers shortening or eliminating payment terms, Octet’s Supply Chain Finance Manager Joe Donnachie has heard it all. “The current challenging economic conditions are putting a strain on cash flow, but many business owners hesitate to address these critical issues early. That’s a mistake.”
Even thriving businesses are feeling the pinch from their traditional finance partners. “The banks and larger lenders are becoming slower and less responsive when providing loans that support business growth,” Joe says.
“Dealing with changing account managers and lengthy processing times is really frustrating for businesses in various stages of growth. Debtor finance is a reliable alternative to a traditional bank loan, offering businesses confidence in accessing working capital quickly and easily.”
Do any of these cash flow challenges affect you?
late-paying customers
restrictive bank conditions
extended payment terms.
Debtor finance could be the answer.
Take control of your cash flow with debtor finance
You might have heard the terms factoring and invoice discounting, invoice financing or invoice funding. But what do they actually mean?
They’re all broadly debtor finance solutions. Invoice factoring involves a business selling its accounts receivable to a financier, who gives them an upfront payment (up to 85% of the invoice value). The financier collects payments from the business’ clients, takes a small fee and passes the remaining funds onto the company. Invoice discounting is similar but with a critical difference — it’s the business, not the financier, that collects the debts.
The terms invoice factoring and invoice discounting are used less these days, as innovative finance providers like Octet offer more tailored debtor finance solutions.
These facilities use a major asset already in the business — the unpaid customer invoices — to sustainably meet its cash flow requirements. Debtor finance is tailored for growth and can reduce cash flow risk.
Joe advises his business clients to set up a debtor finance facility before they need it. “There is a small service fee to have the facility there, but this fee is upfront and predictable, and you only pay interest when you draw funds.”
While debtor finance helps mitigate cash flow gaps and maintain stability during volatile periods, Joe says this type of finance isn’t just for businesses facing challenges. “Debtor finance is used by many thriving, growing businesses looking for a line of credit to appropriately manage their cash flow.”
Businesses use debtor finance to:
enhance liquidity to meet operational needs and explore growth opportunities
take advantage of a tailored solution to suit their needs and cash flow cycles
streamline collections and administrative tasks
unlock potential for expansion and take on new projects
access expertise and tools for efficient credit control and debtor management.
Why brokers and businesses choose Octet for debtor finance
Joe says businesses in a range of industries access debtor finance to help grow their business. “Common industries we service include labour-hire, food and beverage, manufacturing and wholesale. But whatever industry you’re in, if you’re a B2B business, debtor finance can work for you.”
While many business owners are considering their financing options, brokers are also exploring solutions for their clients. Brokers can play a crucial role in helping businesses navigate these cash flow challenges and make informed financial decisions.
“Whether you’re a business owner, a broker or an accountant, if you’re considering debtor finance, take the time to assess the business’s financial position, cash flow forecasts and growth objectives before speaking with a financier.
“Our advice to business owners and brokers is to partner with reputable providers. At Octet, we offer a broad range of working capital solutions tailored to each business.”
get up to 85% of business invoices as a cash advance
can access funds without personal asset security
enjoy the flexibility of their debtor finance facility growing as their receivables grow
can seamlessly integrate the facility with their existing accounting software such as Xero and MYOB AccountRight.
Are you a commercial finance broker? Simply refer your client, and we’ll handle the rest.
Tailored debtor finance solutions for every business
Octet’s Debtor Finance solutions are designed for businesses to meet cash flow challenges, better manage fluctuations, capitalise on opportunities and grow. Whether you’re a business owner ready to explore their finance options or a broker who wants to see their client’s business soar, debtor finance could be the solution for you. Get in touch today.
Disclaimer: The following comments are only our views and should not be construed as advice. You should act using your own information and judgment. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgment as at the date of publication and are subject to change without notice.
In the ever-evolving Australian business landscape, a family-owned wholesale steel supplies business sought to navigate the transition from growth right through to retirement. Facing financial hurdles amidst rapid expansion, on the advice of their commercial finance broker, they turned to Octet for tailored working capital solutions. Via a strategic partnership between the broker and Octet, the business created a clear runway to reach their goals.
Transitioning from solid growth to retirement
Under the management of a husband-and-wife partnership, this family-owned enterprise had flourished, boasting an annual turnover of $18 million. With projections indicating a climb to over $25 million in sales within two years, the future appeared promising.
However, financial complexities emerged. While ANZ provided vital support, including a $200,000 overdraft and a $1,000,000 Commercial Loan Facility, encumbrances against their home and accumulating shareholder loans strained personal finances. With retirement goals in mind, the owners aimed to fortify their superannuation, setting a target of $2 million for extra peace of mind.
Octet’s Debtor Finance Facility: A strategic cash flow solution
Recognising the delicate interplay between personal and business finances, the family-owned business sought expert guidance. Their broker engaged Octet, offering tailored working capital solutions to address the business’ complex needs.
Octet’s Debtor Finance Facility emerged as the appropriate strategic tool for financial agility. Leveraging the business’s approved $3 million receivables ledger, the facility provided an 80% advance, ensuring immediate access to funds. This facilitated settlement of the existing ANZ facilities, freeing the family from personal debt.
“This liquidity fueled the business’ growth aspirations and facilitated loan payoffs, marking a significant milestone for the business,” said Brendan Green, Octet’s General Manager – Working Capital Solutions.
Empowering retirement and financial resilience
Empowered by this financial restructuring, the business owners redirected their focus towards retirement planning. With an after-tax contribution of $100,000 into their superannuation and adjusted loan repayments, they aimed to bolster their super balance to $2 million over a decade.
Through the guidance of their broker, and smart working capital solutions from Octet, this husband-and-wife team avoided anchoring their retirement solely on potential business sales, ensuring financial resilience regardless of any outcomes.
Says Brendan: “With some expert advice and strategic manoeuvring, the business owners overcame challenges, aligning personal and business finances for a prosperous future.”
Grow your business with Octet
Via our Referral Partner Program Octet empowers businesses across a range of industries, including labour hire, manufacturing, wholesale and transport, offering innovative debtor finance and other working capital solutions.
Speak to our team of working capital specialists to see how we can power your business growth today.
Disclaimer: The following comments are only our views and should not be construed as advice. You should act using your own information and judgment. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgment as at the date of publication and are subject to change without notice.
Whether it’s to improve cash flow, manage a sluggish sales period or realise growth potential, businesses will often need to seek external forms of funding. There are many finance options available, and it can be difficult, as a business owner, to know which way to go.
Debtor finance (also known as invoice finance) is often an attractive option for high-growth businesses. This form of funding enables a business to access funds tied up in its outstanding B2B invoices. And it’s a solution that is growing in popularity, with reports indicating more and more businesses are seeking this form of finance.
Start researching debtor finance and you’ll come across a range of terms, definitions and products, including invoice funding, invoice factoring, invoice discounting, and confidential and disclosed products. So, what is debtor finance, how does it work and how can it benefit your business? In this article, we explore these forms of financing, some of the products available and how they help businesses in a range of industries.
How debtor finance works
As any business owner knows, maintaining cash flow is the most powerful tool for starting, managing and growing your business. Strong, steady cash flow puts you in a better position to:
cultivate good relationships with your suppliers, as you’ll always have the funds to pay them on time
quickly take advantage of opportunities to invest in new products or services and stay ahead of competitors
weather financial storms when business is quiet, or you encounter supply chain issues.
But if your customers are slow to pay, that cash flow can get blocked. That’s where debtor finance products can help, by giving you access to funds tied up in your business’s outstanding invoices.
Sam Ralton, Octet’s Director of Working Capital Solutions, explains. “There are a number of terms used to describe these products. Invoice finance, receivables finance, debtor finance — they all cover essentially the same broad offering, which considers the receivables ledger or the invoices that are outstanding in a business and provide funding against those.”
Invoice factoring and invoice discounting are two ways to finance outstanding receivables to keep money flowing. Let’s explore these options.
What is invoice factoring?
With a debtor finance facility known as invoice factoring, you effectively sell your accounts receivable to a financier. In exchange, they give you an agreed percentage (often up to 85%) of the value of the invoices upfront — quickly and easily.
From there, the financier becomes responsible for collecting and processing payments from your clients. Once they’ve collected payment, they pass the rest of the money onto you, minus a small fee. Here are a few things to keep in mind.
Because you pass the responsibility of collecting payment to the financier, invoice factoring can potentially save you bookkeeping fees and staff time. The trade-off is that you forfeit some control over your day-to-day operations.
Invoice factoring companies generally help with sales ledger management by allocating payments, and sending statements and reminder letters. The associated fees are therefore higher than for some other debtor finance services because the financier does more work.
Your customers will know you’re using a financing facility because they need to deal with your financier.
What is invoice discounting?
Invoice discounting (also known as receivables discounting) is similar to invoice factoring but with one key difference. With invoice discounting, the financier doesn’t take on the responsibility of collecting the debt. Instead, that stays with you. This is what you need to know.
With invoice discounting, you manage your sales ledger, which means you keep control of a significant aspect of your business.
Rather than operating on an invoice-by-invoice basis, invoice discounting is usually based upon your ledger balance as a whole. This lets you smooth out any cash flow fluctuations you may have over the period.
Invoice discounting also lets you keep your funding confidential from your clients. They won’t know that you’re using a financier.
Whichever method you choose, both invoice factoring and invoice discounting let you tap into your accounts receivables to keep your cash flowing and your business growing.
The evolution of factoring and discounting
Sam says the term factoring is used less frequently these days. “In the early days, invoice factoring was fairly intrusive. Businesses found they had to hand in every invoice, and the financier would chase up the debts.”
Today, reputable finance providers like Octet offer more tailored debtor finance solutions and collaborative partnerships. “We have supply chain finance managers that are constantly in discussions with clients, looking for any cash flow issues or opportunities that may arise and assisting with these.”
“We have also seen the emergence of hybrid type disclosed invoice facilities that enable the business and financier to work in partnership. These allow the business to retain their receivables collections, with the financier simply sending monthly statements in support. It’s a lighter version of disclosed invoice finance and reflective of the progression of the product over the years.”
What’s the difference between confidential and disclosed debtor financing?
A confidential debtor facility is where your customers don’t know a third-party financier is involved. You’re under no obligation to tell your debtors (in other words, your customers) that you’re using debtor finance, and the financier does not contact them on your behalf.
It generally attracts lower fees as the financier can’t put their owndebtor management strategies in place, and your clients don’t know they’re involved.
With disclosed invoice discounting, all parties know and agree to the financing facility. Your invoices will need to include communication regarding the third-party financier, who has the right to contact your customers to chase payments.
There are generally higher fees involved as this allows you to hand off debtor collection procedures to the financier and provides full visibility for all parties involved.
How does confidential invoice discounting work?
Once your facility has been approved and set up, you’ll need to communicate a change in bank details to your debtors. The new account is held in trust by the financier.
You then upload invoices into the financier’s system at the same time you send them to your customers. The financier then transfers up to 85% of the invoice value directly to your bank account, often less than 24 hours later. Then, once your customers pay the invoice into the trust bank account, the financier transfers the balance to you, minus their agreed fees.
This process means you can keep your existing accounts payable procedures in place. Chasing up late payers remains your responsibility, but that also means you maintain control of that vital relationship.
How does disclosed invoice discounting work?
Once you’ve been approved for a disclosed facility, the financier will get in touch with each of your customers as you upload their invoices into the system. Your customers will need to pay the invoices into a bank account held in trust by the financier, as they would with a confidential facility. However, they will know that it isn’t your business’ bank account.
Just as with confidential invoice discounting, you’ll receive up to 85% of the invoice value within as little as 24 hours of uploading the invoice into the system. Then the financier will liaise with your customers to collect payment. Once the customers have paid, the balance of the invoice value will be transferred to your bank account, minus fees.
Which is best: confidential or disclosed?
The best choice for your business generally depends on two factors:
Your business’ current credit rating. If your business has a strong credit rating, you may be eligible for confidential invoice discounting.
How much control you want to have. Some businesses prefer to keep debtor management as part of their client relationships, while others are happy to hand it off to a third party.
Businesses are becoming more comfortable handing over control of their debtor management and customers are becoming increasingly used to a third party being involved. Engaging a financier to access your receivables means you’re being smart about your cash flow. Accessing one of your biggest business assets enables you to grow faster, which is better for you, your suppliers and your debtors.
The advantages of debtor finance
Why would a business choose debtor finance over traditional forms of finance, such as a bank loan? Sam explains.
“Banks focus on ‘bricks and mortar’ assets and are very keen on taking property security and effectively offering a mortgage when it comes to business lending,” he says, adding that this is one of the major disadvantages of traditional bank finance. “That’s because not all businesses have sufficient property assets to use as collateral, nor do they generally want to use their director’s personal assets as security.
“Debtor finance is effectively funding against the biggest asset in most businesses — the receivables ledger, which is cash owed to a business by its debtors or customers. That ledger typically sits there as an asset, not doing anything until paid pursuant to agreed payment terms. Because a debtor finance facility actually uses that asset as security for funding, it removes the need for directors or owners having to put up property or other security.”
Sam says banks can also be slow-moving, taking more than six months to approve applications for finance applications. In the meantime, businesses can miss out on opportunities or fall deeper into cash flow woes. Debtor finance applications, on the other hand, can be approved within a matter of weeks.
Is debtor finance right for you?
When considering a debtor financing product or facility for your business, there are a few things to keep in mind. Like any form of finance, there are costs involved. These will vary depending on the provider, the type of product, the financier’s workload and whether it’s a confidential or disclosed facility.
“Generally, there’s an interest component on the borrowed amounts and a service fee,” says Sam. “There’s a bit more work involved in disclosed debtor finance because the financier is constantly reviewing the ledgers.
“But businesses using a debtor finance facility are probably only paying slightly more than they would for a standard mortgage or an overdraft facility.”
The suitability of this type of facility depends on your business and its needs. Sam understands some businesses have had negative experiences with debtor finance, but that’s often the result of choosing the wrong financier or using a product not suited to the business.
Business owners might also be concerned about handing over control of their accounts receivable or ledger management to a third-party financier. This is why choosing the right finance partner is vital.
Look for an invoice financier with a solid reputation, says Sam. “You need to have comfort in the security of the business that’s providing funding and partner with someone that’s going to last.”
Some finance companies offer quick fixes, which Sam advises businesses to avoid.
“There are a lot of companies that do short-term loans at higher interest rates, fairly quickly, but it’s not going to help a business become sustainable in the long term. We’ve seen business owners take up short-term loans and then realise how expensive they are. My advice is to look for a financier that is going to be a long-term partner and understands the overall business strategy and success measures.”
Is your business ready for a debtor finance solution?
There are several reasons why you might be considering debtor finance for your business. Due to your payment terms, you might be experiencing cash flow issues, find that you can’t restock until invoices are paid, or simply want faster-moving cash flow to open up growth opportunities.
“Most businesses that speak to Octet about debtor finance have high supply costs,” says Sam. “Let’s take the example of alabour-hire company, which will raise an invoice after the work has occurred. But they must pay staff before their invoices are paid.”
Debtor finance allows these businesses to fund their workforces without having to wait for debtors to pay. This is particularly helpful in the growth stage of a business.
“These facilities grow with the business because as you raise more invoices, you can generally access more funding,” Sam says. “And as a business winds down, the facility pays itself out so the directors aren’t left with a large hole that takes away their property.”
A fast-growing business was exactly the opportunity facing a NSW-based labour-hire company that recently sought Octet’s help. The business grew from a humble startup to turning over $30 million in just seven years, and it had outgrown its bank, which just couldn’t keep up with its need for flexible and fast funding. The business didn’t want to turn away new customers but it just didn’t have the cash flow to take on new business and pay its debtors on time. Octet’s debtor finance solution filled that gap.
A Western Australian-based network and telecommunications parts wholesaler was also outgrowing its existing funding arrangement when it turned to Octet. The business was growing fast, but its available capital couldn’t support that growth. Octet provided a notified (disclosed) invoice discounting line with a $600,000 funding limit. This gave the business a line of credit where it could access up to 85% of the value of its invoices as cash within 24 hours of customer sales.
Octet, the experts in debtor finance
Octet’sDebtor Finance facility lets you convert up to 85% of your unpaid invoices to cash within 24 hours.
But is it the right funding choice for you? It might be a good fit if your business:
offers longer payment terms to customers
is seasonal
contracts to large corporations that can set their own (longer-than-average) payment terms.
Debtor finance gives you the cash flow to pay suppliers, buy equipment or expand your business. Because it’s based on your outstanding ledger balance, the amount of finance you have available generally grows as your business does.
Unlike many other types of finance, you don’t need to provide security like property. So, if you’re a business owner who doesn’t have personal property, or your assets don’t have enough available equity, debtor finance may be your best option. It’s flexible enough that you can use it as your primary source of funding, or only for top-up funds.
Octet’s Debtor Finance is available to businesses ranging from newer companies to well-established ones. Ideally, we would like to see an annual turnover of at least $1 million, an outstanding invoice value of $100K+, with some demonstrated business trading history (but don’t hesitate to contact us anyway if you’re fast-growing and turning over $500,000 or more, as we may be able to help).
Discover more about debtor finance
Considering a debtor finance solution for your business? You’ll want to team up with a financier you can trust. Theright solution for you will depend on factors like how big your business is, your assets and the funding amount you need to inject.
Octet has been providing working capital solutions, including debtor finance, since 2008. Talk to us today to discover how we can power your business growth.
Disclaimer: The following comments are only our views and should not be construed as advice. You should act using your own information and judgment. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgment as at the date of publication and are subject to change without notice.