If you have cash flow problems in your company and you don’t have the money or the resources to get bank financing, you may want to consider debtor finance.
There are two primary ways of debtor financing: factoring invoices and discounting the invoices. Invoice factoring may usually suit small or rising businesses while invoice discounting may be more suitable for big, existing businesses.
Find out how debtor finance works, the main differences between factoring and discounting, and which one may be correct in our guide below for your company.
What is Debtor Finance?
Debtor financing is a way to fund your business by the use of unpaid invoices to receive funding. Instead of waiting for invoices to be charged, you will be granted direct access by a finance company to a percentage of the invoice as a credit line in exchange for a fee. This can be an efficient way to get working capital for both small and large companies and to eliminate the cash flow issues that can be created by slow-paying invoices.
Like conventional corporate loans, debtor finance allows you access to capital without needing to use an asset as collateral against the loan or following strict lending conditions.
You will typically be charged a fee equal to one percentage of the invoice value in both invoice discounting and invoice factoring. Invoice discounting costs are likely to be lower, since the organisation itself also performs the compilation and maintenance of the invoices.