As an entrepreneur, there may be times when you need capital but cannot get a traditional bank loan. However, for business owners who are in need of instant liquid funds, opting for a debtor factoring service may be a viable solution.
Most small businesses sell their goods or services to large business enterprises that offer a thirty to sixty days payment terms to their clients. In most cases, you will have to accept these terms to be able to retain your customers. However, offering such payment terms has credit risks. In most cases, it creates cash flow problems as most small businesses do have the cash reserves to wait for thirty to sixty days.
Debtor factoring is an alternative form of financing that allows entrepreneurs to sell their outstanding invoices or accounts receivables to third parties known as a factor. The factor will advance cash funds to the entrepreneurs, which are equivalent to a certain percentage of the total value of these outstanding invoices. This means that you will receive payment for the goods and services that you provide to your clients almost immediately. On the due date, the factor will collect the customers’ payments and forward the rest of the invoice amount to you after deducting the factor’s commission and service fees.
Debtor finance services in Brisbane is an attractive form of financing where entrepreneurs receive instant cash funds regardless of the size of their business or its record of accomplishment. Moreover, under debtor factoring services, entrepreneur can have access to more liquid funds than a commercial lender as long as there is an adequate stream of valid invoices for reliable accounts.
The most notable advantage of debtor factoring services is that it provides entrepreneurs immediate access to instant cash. This makes it easier for them to expand their businesses by taking advantage of steep discounts for bulk purchases from suppliers or launching a new advertisement campaign. These entrepreneurs can even invest in projects that are expected to generate more revenue in future. However, many other advantages that make debtor-factoring services a viable form of financing. These are:
No collateral required
Debtor factoring services do require collateral from entrepreneurs in the form of property or business equipment. The factoring companies carry out their due diligence on your customers. This forms the basis of most debtor factoring agreements.
Simplified accounts receivable
Most debtor factoring services take over the entire process collecting payments from your customers against their outstanding invoices. This eliminates the amount of time you would have to spend as an entrepreneur on collections. Apart from collections, you are relieved of the need to manage and reconcile the outstanding invoices at regular intervals. Debtor financing services also cuts down on waiting time. Without debtor financing services, you may have to wait for forty-five, sixty or even ninety days to receive collections.
Ideal for start-ups and small businesses
When it comes to opting for traditional banking loans, there is pressure on you as an entrepreneur and your enterprise to prove that you can repay the loan. This can be very difficult for start-ups, small business establishments and those without the necessary cash flow. However, in debtor factoring services, the factor is more concerned about your customers’ ability to pay their dues.