Debtor Finance (or as it is sometimes known -Invoice Finance, Factoring, Receivables Finance or Cash flow finance) is a flexible working capital funding solution for businesses which releases cash tied up in outstanding customer invoices, bridging the cash flow gap between raising an invoice and getting paid.
Debtor Finance can help release the cash flow locked up in your outstanding invoices quickly by advancing up to 85% of what you’re owed from customers. The remaining 15% is returned to you when your customers pay their invoices. In this way, you can have access to the cash from your sales quickly, leaving you to get on with managing the growth of your business.
Risks, if your client doesn’t pay you (or the debtor financier if they are collecting on your behalf) within your normal trading terms say 90 days then the debtor financier has recourse to you and will require the discounted & unpaid invoice to be repurchased.
Debtor financiers normally finance invoices for goods or services that you have delivered and are not a progress payment claim, but there are exceptions from time to time.
A good example is discounting invoices for a labour hire business. The labour hire company has a contract to supply personnel, to their customer at an agreed hourly rate, for an agreed number of hours per week. The labour hire company has to pay its employee each week but might not get paid by their customer for 30 to 60 days from end of month. This cashflow gap could be very large if a large number of staff are being contracted out. With debtor finance, the labour hire company can get paid a percentage of their invoice within hours of raising the invoice.