Created out of an industry need for a company to supply customer focused debtor finance advice, Trade Debtor Finance Consultants herein explain debtor finance, how it works, and the benefits of using the service.
Also known as full service factoring or invoice discounting, trade debtor finance is where a business sells all or part of their debtors unpaid invoices, or ledger as is the industry term, to a financier to raise their working capital for expenses, wages, or fuel.
Trade debtor finance works by businesses selling the invoices raised from goods and services delivered to customers to a factoring financier. The Factoring Financier then advances up to 80% of the unpaid invoice value within 24 to 48 hours. The remaining 20% is advanced after the invoice is paid, less a small fee of about 1% to 3%.
To utilise this service businesses need simply to forward copies of the invoice to the factoring financier, and once verification of invoices is complete funds are advanced. The business can retain control over accounting functions and collections, or they can employ the factoring financier to control this function, however Trade Debtor Finance Consultants recommend keeping this control in house.
The key benefit of trade debtor financing is the flexibility it offers. Funds are readily available as credit sales are converted into cash within 48 hours. Furthermore, with cash in the bank, better trading terms can be negotiated with suppliers, including early settlement discounts and the ability to buy in bulk. The need to offer settlement discounts to customers is also eliminated as the urgency for payment is no longer there. With trade debtor finance, there is also a certainty of time of payment.
When it comes to the cost of debtor financing services, different factoring lenders charge different fees based upon set up structure, size, and risk. The average cost of debtor finance is 3% a month, however this depends on a company's debtor payment terms, i.e the longer it takes them to pay the higher the cost.
Trade Debtor Finance Consultants are experienced in debtor finance and know what lenders to recommend for the individual needs of each business. They have access to over 22 trustworth debtor finance lenders and will never sell a client's information to a third party. Furthermore, in most cases there is no direct upfront fee for their consultation.