debt financing

A Viable Opportunity To Free Up Cash Flow


Maintaining a steady cash flow is vital for all businesses. It enables the owner to make investment decisions and pay for expenses. Without adequate cash flow, the business could suffer unwanted consequences. This is why debtor finance has become a popular trend in business today.

What is Debtor Financing Exactly?

It is a process in which the business owner supplies the financing company with invoices. These invoices identify how much a client owes and when it was due. The financing company provides a contract to the business owner to ensure the collections of the debt.

The financing company provides the business owner up to eighty percent of the total debt upfront. Essentially, the business owner is guaranteed the first eighty percent of the debt. Next the invoice finance provider utilizes their strategies to collect the identified debt from the client. After the balance is collected, the provider gives the business owner the remaining portion. However, they deduct their fees as listed on the contract.



How Does This Help Businesses?

Businesses need cash on hand to cover expenses. These expenses could include ordering supplies or covering debts of their own. They gain a clearer picture of their finances, by receiving a guarantee of at least the first eighty percent.

Businesses suffer when they must wait for customer payments. It prevents them from using the capital as they see fit. If they want to expand their company, they face difficulties. Additionally, collection efforts conducted by business owners takes away from core operating requirements. Some owners don't have a lot of expendable time. If they can't manage these efforts, employees are burdened with the responsibility.

Understanding Collection Strategies

With debt factoring, the business owner doesn't have to learn the new laws of collection. These laws could prevent the company from contacting customers in certain ways. The company offering the factoring service is aware of these requirements.

Is the Factoring Company Part of the Original Business?

No, the company that purchased the invoice from the original business doesn't act as part of their company. They are a separate business entirely. They contact customers as their own company and not as a part of or on behalf of the original company.

Businesses that utilize debt financing could free up cash flow quickly. They won't face the same restrictions as fighting through collection requirements to collect. Business owners who are curious about the services should contact a provider today.