Invoice debtor finance is a form of financing through which a business can obtain fund to run its operations against an invoice whose payment has not yet fallen due. It is a common form of financing among small and middle-sized business startups. It is one of the most preferred forms of financing as it is relatively easy to obtain money against these financial instruments.
It is common in those business entities that extend 30 or 60-day payment terms to their debtors after supplying goods but cannot wait until term lapses. It is common for those businesses that do not have steady cashflows or business reserves to cater for the period that you will have to wait. Since there are those financial obligations that the business has to meet between supplying the goods or products and receiving the payment, as an owner, you will have to find ways to meet these obligations, hence invoice debtor finance.
Can it save the business?
Invoice debtor financing can act as a lifesaver for your business when you hard-pressed for cash. With the 30 or 60-day delay period, most areas fo the business can suffer especially when you do not have any other source of income. If your business has a tight cash flow, you might not be able to bid for more jobs as you won’t have the money to service the contracts. This may lead to delayed contracts which will adversely affect your relationship with your business partners which will greatly impair your chances of future contracts.
If you are however able to free some money from the already completed projects, you will be able to bid for more work and deliver in time. With time, you will be liquid enough that you will not need to take the debtor invoice finance to facilitate your contracts. The beauty about these financing is that the risk of losing money is quite low since most of the debtors will pay once the period lapses. This means that you can accrue some obligations to be settled once you receive your pay.
From these illustrations it is clear that invoice debtor finance can save your business is well utilized. The most important thing is to ensure that you take it with the organization with the most favorable terms. Again, when choosing the organizations to supply to, ensure to get the ones with the least possibility of default as this will avoiding creating unnecessary risk to you and your financier.