Should You Leverage Your Debtor Book to Help with Cash Flow?


If you are in charge of a growing business and are facing some cash flow issues in the near future, you'll be looking at all your options and trying to find the best solution. Certainly, these can be challenging days for every business, but if you have a solid number of customers on the books and they have a good track record of settling their accounts, this may present one option for you. Why should you think about a form of debtor financing or factoring?

Leveraging the Debtor Book

Many organisations today provide goods or services to their customer on credit and collect the payment after a certain deadline. Traditionally, this may be 30 days, or in some industries, it can be as long as 60. As things may be getting tighter, it might be difficult to make ends meet due to cash flow restrictions, but certain lenders will help you overcome this issue by leveraging your debtor book. This can be handled in one of two different ways depending on whether you want to retain more control over your debtor relationship or not.


To begin with, think about pure debtor financing. Specialist lenders will take a look at your debtor book and also determine how good each debtor is at settling their outstanding bill. So long as the behaviour of these organisations falls within certain criteria, then the lender might be willing to advance you a certain amount of money, secured against the debtor obligations. Once the debtor settles the bill in due course, the lender will pay you the balance of the outstanding amount, minus their fees.


On the other hand, you may need to consider an option known as factoring. The end result is essentially the same, but, in this case, the lender will take over the entire process involved and will actually issue each invoice. Just bear in mind that with this option, your customer will now receive an invoice from the factoring company and will be aware that you are using their service.

Valuable Tool

Debtor financing or factoring is one way of raising some much-needed cash as you are leveraging against your existing operation. It can certainly help you to smooth out any cash flow hurdles and should be a tool to have in your arsenal if unpredictable times prevail. For more information, speak with a professional at an accounting service near you.


25 March 2020

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