Debtor finance is the collective term used for a range of services that improve business cash flow from invoices as soon as they are issued. In practice, debtor financing involves getting a bank or specialist lender to provide your business with a loan of up to 80% of Accounts Receivables, which is secured against the outstanding receivables of the business. If you have particularly long credit terms (for example over 60 days) but need an immediate working capital, rather than waiting for customers to pay, then debtor financing can help.

Debtor financing provides an alternative way to fund the working capital of the business without using your personal assets or the fixed assets of the business as security.

It can be particularly useful for businesses without significant fixed assets (such as technology companies) who wish to fund short-term growth, as well as businesses looking to address short-term cash flow issues

Another type of Debtor Financing is Factoring which involves the sale of a business’ book debts on a continuing basis. Usually the factoring company will buy the business’ sales invoices at a discount.  The factor then collects the invoice amounts from the business’ customers. The business receives the cash, less the discount, form a credit sale quickly (usually within 24 to 48 hours) and maintains a healthy cash flow even though the debtors may not pay for the sale for another 60 days or so.  Usually the factoring company takes the difference as profit; however some factors’ prefer to provide a percentage up front, the remainder on collection, and charge interest and fees on the transaction.

A maximum of between 70% and 90% of Invoices can be advanced, depending on the type of business.