Use Debtor Finance or Factoring to Buy More Stock

Buying more stock/inventory using Debtor Finance or Factoring

It is common practice in business to work using a “just in time” inventory management system. This means that you hold minimal stock and buy “just in time” to fulfill anticipated orders. Hopefully, you have anticipated soon enough. Many don’t realise you can use debtor finance or factoring to cash flow your inventory.

Obviously, for businesses that are just starting out this method minimises risk as capital is not being held in excess stock.

However, for more established businesses, or businesses keen to grow; there are arguments for holding some additional stock.


These include:

1. Increasing customer satisfaction

• It is a known fact that we live in a world where people are used to getting what they want instantly, like NOW; and this is no exception in your business. By holding more stock you are able to fill orders quickly and therefore guarantee customer satisfaction.
• In addition to filling everyday orders promptly, having an inventory of stock means that you are able to cater to customers that need orders filled “right now” instead of simply having to turn these customers away. When you are able to solve a supply problem with that Customer you have been trying to get for years, you may have won a customer for life. Again, debtor finance or factoring can assist here.

2. Reducing costs by taking advantage of supplier discounts

• Suppliers and wholesalers often offer significant discounts when you buy in bulk when you buy more units. So not only are you decreasing the cost per unit but you are able to also take advantage of potential sales that the additional inventory brings.

3. Greater control in the event of supplier delays

• Unfortunately, it is not unheard of for suppliers to experiences delays. This can happen unexpectedly and often when you need stock fast. So, especially if you are in an industry that often experiences these issues, it can be helpful to mitigate the risk of this by having a level of inventory that you can use to fill orders in the meantime. If there is a jam in the supply chain your competitors are also likely to be impacted so not only are you reducing risk for yourself but you are gaining an advantage over your suppliers.

4. Larger range of stock is better for merchandising

• Also, having a larger range of stock available for immediate purchase is better for promotional and merchandising purposes. Customers will be attracted to a store that looks like it stocks a large assortment of products and having full shelves helps give off this impression.

Overall, it is in your interest to think about how buying more inventory could benefit you by reducing both costs and risk.

A business that need to carry stock should consider debtor finance and factoring to fund their stick acquisitions.


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Unlock Your Hidden Capital and Learn to Use It

About Your Hidden Capital

Growth is the goal of all businesses, unfortunately, it can be difficult to allocate the resources and funds to do this when stock needs to be bought, wages paid and outstanding invoices loom. However, if businesses had the capital that they had earned today in their hand tomorrow rather than in the standard 60 to 90 days then the funds to grow your business would be available. Many don’t know it but there is hidden capital sitting idle in many businesses. This is about releasing your hidden capital and what you can do with it  This is actually possible, to release your hidden capital, through debtor finance, sometimes called factoring or invoice finance. It’s a working capital finance tool that many business owners are unaware of. The below diagram illustrates how this simple process works and how you can use money from completed sales to finance new ones straight away rather than waiting for payment so that you can play catch up with existing clients.

A significant benefit of debtor finance is that the finance you receive is not tied to the value of your home, other real estate or any other asset. This means that the finance you are eligible for is dependent on the size of your business and the growth of your business, which also means that it grows with your business.

Often, it is the small business that struggles the most to access working capital finance from banks to grow, so, this guide offers a snapshot of how you can access capital locked in your business and ten potential ways you can use that capital to grow and improve your business.

What could you do with working capital that you had unlocked through invoice finance when you ha tove access your hidden capital

Here are some suggestions or what you could do and with the hidden capital you have unlocked

1. Buying more stock/inventory

2. Negotiate prompt payment discounts from suppliers

3. Increase sales and marketing budget

4. Employ for sales staff or more production staff

5. Purchase equipment or machinery to streamline your workflow

6. Expand into different product lines or services that compliment your current business and distribution channels

7. Expand into different regions, states or overseas

8. Take sales and marketing online

9. Undertake the research and development project you have thought about

10. Work ON your business not IN your business

Youy can find ouy more TODAY by phoning 0467 299 303 or Click Here.

Consider Factoring and Accounts Receivable Financing

Running a Trade Services of Trading Company in Australia? Low on Short-Term Funds? Consider Factoring and Accounts Receivable Financing!

Without the various trade workers that make themselves available for such a rich variety of services. Many of us would be stuck contending with problems by ourselves. It is not always easy to keep your accounts receivable current, and with some of your clients taking invoices on terms like net-30 or greater, it can be weeks after a job before you see payment.This is why you should consider Factoring and Accounts Receivable Financing

That can lead to a cash crunch that leaves you looking for options. Don’t rely on personal credit cards or other options when you have unpaid invoices for completed work. Consider the value in contacting a factoring company in Brisbane By factoring your accounts receivable and transferring the payment collection duties to another firm, you can gain cash in exchange. There are many things you can accomplish with this new-found source of money. It may even spur you to change your invoicing practices. How can you choose someone to work with for factoring finance in Australia? You won’t need to look far: Nova Cash Flow Finance has the experience and customer service skills to help you today.

Flexible solutions for factoring and accounts receivable financing in Australia.

Many banks are reluctant to work with small trade companies at all. They are even more hesitant to extend lines of credit or a loan for working capital. Nova Cash Flow Finance instead exists to help you unlock the funds already waiting for you in the business accounts receivable records.

Think about what you would do if you received a proposal for a huge job– perhaps an exciting opportunity to work with your first truly major client. To do the job, though, you may need extra equipment or infrastructure you lack. Your budget does not have room for such a purchase yet– but if you had access to much of the outstanding invoices on your books, you could seize the opportunity instead. Through factoring and accounts receivable financing, Nova Cash Flow Finance makes these scenarios a reality.

Contact the Nova Cash Flow Finance team today to learn more

Turning to accounts receivable financing in Australia is an excellent way to cash in debtor invoices while also avoiding the burdens of taking on a loan. Whether you choose to use the money to catch up on expenses or to probe opportunities for growth, you can continue plying your trade without such immense financial pressures. We understand that time is often essential when you need to consider factoring invoices, which is why our quick response times make Nova Cash Flow Finance an asset for your company. To discuss your financial needs and explore what we can do for you, contact us 24 hours a day by calling on 1300 138 186.

It is not always easy to keep your accounts receivable current. With some of your customers taking invoices on terms like net-30 or greater, it can be weeks after a job before you see payment.

By factoring your accounts receivable and transferring the payment collection duties to another firm, you can gain cash in exchange. Nova Finance instead exists to help you unlock the funds already waiting for you in the business’s accounts receivable records. Through accounts receivable factoring, Nova Cash Flow Finance makes these scenarios a reality.

Turning to accounts receivable financing in Australia is an excellent way to cash in debtor invoices while also avoiding the burdens of taking on a loan.

What is the Factoring Reserve in the Factoring Relationship?

What is the Factoring Reserve

Factoring Reserve is an integral part of the Factoring process. Factoring Finance works by funding the individual invoices of a small business.  The funding is done as two separate payments.  The first payment is called an advance and normally covers usually in two installments. The first payment covers approximately 80% of the total value of the invoice and is called the ‘advance’. What is the Factoring Reserve? The Factoring Reserve is the 20% (or other amounts) that is not advanced up front. The percentage amount of the advance is negotiated at the beginning of the factoring relationship and remains at that percentage for the duration of the agreement and for every invoice.  The advance is deposited to your bank account soon after the factor receives and processes the invoice.

The reserve amount

The second payment is called the rebate.  If the advance is 80%, the at the point of funding the 20% is called the ‘Reserve’.  The factor takes the 20% and puts it in a reserve account in the event of debtor non-payment.    

When the invoice is paid the factor, it is receipted and the 20% (less any fees) is paid to the small business owner.  This is called a rebate payment.  The amount that was in reserve is taken out of reserve and any fees due are deducted and the balance related to the small business owner.

The reserve amount plays a key role in non-recourse factoring if the invoice is not paid. Specifically, debtor default means the factor must assume the entire loss.   Although the reserve may not make good their full loss, it does protect them to some extent.

In recourse factoring when the invoice is not paid the factor can recover the amount owed from future invoices or a combination of the reserve amount and future invoices.  

The reserve/rebate payment does not represent complete protection for the factor but it does act as a sharing of the risk in the event of non-payment by the debtor.   

At all times the factor will endeavor to recoup their losses and make themselves whole by putting them in the same position as they were prior to funding the invoice.

the seller and this gives them some relief in the situation.

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Liability of the Seller or Business in an Invoice Factoring Context

Invoice Factoring – Sellers Liability

Invoice factoring is a simple and efficient way to release the cash in your unpaid invoices by giving you access to working capital that lets you grow your business. Like all financial transactions, there are some drawbacks. One of the most important things to be aware of here is the legal obligation on you as the business owner if the debtor does not pay the invoice.   Essentially there are two types of invoice factoring, recourse, and non-recourse invoice factoring.  Let’s examine those in more detail.  

Recourse factoring and non-recourse factoring

With recourse factoring, the factor, ‘buys’ your invoice and gives you an advance payment against it.  The advance is at a discounted amount of the face value of the invoice.  If your customer does not pay the factor within a set time period, usually 90 days the factor will recourse the invoice.  If the debtor defaults on payment, you have a legal obligation to buy the invoice back from the factor.   This is usually done by recovering the amount from future invoices.  

In a non-recourse factoring agreement, the factor does not ask the business owner to buy back the invoice in the event of debtor non-payment.   Any losses, unpaid invoices or late fees are absorbed by the factor. absorbed by the factor, leaving the business owner whole.  This type of factoring is more risky for the factor and is priced accordingly.

On the face of it,  non-recourse factoring looks as though it may be the better option for the business selling the invoice to the factor.  

Both types of factoring have advantage and disadvantages.   Recourse factoring comes with a lower transaction cost but as already identified the business owner is responsible if the customers default on payment.  On the other hand, non-recourse factoring offers a risk-free transaction for the business owner but often carries a higher transaction cost.

Before deciding which type of factoring to take up a business owner should carefully asses their debtor’s ledger and the value of their invoices. If the overall invoice amount is small, the business owner may decide that the company can absorb the risk that comes with recourse factoring.

Fix Cash Flow Issues With Factoring

Factoring with Nova Cash Flow Finance

When an SME is facing cashflow problems mainstream, thinking by big financiers is that the business owner will call on personal savings. Unfortunately, by the time the cashflow crunch hits, personal savings have already usually been exhausted. Also exhausted are those of close family and friends.  When you are experiencing cashflow distress it’s time to consider factoring with Nova Cash Flow Finance.

The next step is NOT a loan.  Although its difficult for a small business to get a loan to assist growth when times are good there’s no chance during cashflow distress.  The chance of a bank approving a business loan or overdraft in hard times is almost impossible.  

Time to consider factoring but you have no money in the bank and no security to offer.

That’s okay.  The whole premise of factoring is that the risk is in the debtor’s ledger of the business owner. Not the business owner. So if you have no money in the bank and no security to offer but you have a good spread of debtors, that pay reliably then this is what the factor will look at to assess your eligibility for funding.

The question of creditworthiness

To the Factor, the creditworthiness of the debtor is the biggest factor to consider before approving a funding line. When an application for factoring is made by the business owner, the lender first checks the applicant’s creditworthiness.

Negative information will not necessarily impact a client application for a funding line. However, it is always investigated.

What can impact the application is negative credit information on the debtors.

Risk management presents a constant and ongoing challenge for all factors no matter the size.   To ensure the factors interests are fully protected the debtor must be assessed for risk of non-payment. This does not need to be done repeatedly for the same debtor but every debtor needs to be assessed.  The process is thorough and there can sometimes be a gap between submitting a debtor for approval and funding the debtor’s invoice.

Factoring to the rescue

The factor will fund the underlying asset or invoice of the business owner at an agreed percentage of the invoice value.   This makes factoring an immensely useful tool for business owners who have just set up their company or those who are recovering from an economic downturn that has affected their cashflow.

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How Does Debtor Finance Work?

A Step by Step Overview of Debtor Finance

Companies facing a cash-flow squeeze and slow-paying customers often sell their invoices or accounts receivable to specialised companies called factors. This is called debtor finance. In this article, we will go through a step by step overview of how you can use debtor finance.

Companies that use factoring like it because they get money quickly. Rather than waiting the usual 30 or 60 days for payment. After sending an invoice to a factoring firm, a business can have money in its hands within 24 to 48 hours.

Some businesses use Factoring Finance | Debtor Finance | Invoice Factoring to get started. Banks always focus on a business’s creditworthiness and real estate assets in considering whether to make a loan. Factors look at the financial soundness of a business’s customers. As a result, business with scant credit history may be able to sell their invoices.

Billions of dollars in accounts receivable flow through factors each year. Many of them specialise in particular industries such as trucking, construction or health care. Some companies use factoring finance to meet cash-flow needs as a stop-gap measure.

Other businesses prefer factoring to banks, which often factoring businesses require less paperwork than Banks. The same applies other outside investors, who may want a piece of the business and dilute the owner’s equity.

The factor advances most of the invoice amount — usually 70% to 90% — after checking out the credit-worthiness of the invoiced customer. When the invoice is paid, the factor remits the balance, minus a transaction (or factoring) fee – this is called a rebate.

Lets break that down step by step.

Step 1:

The fundamental thing to remember is that funding is secured with the business owners debtors ledger.

So our risk is not with the business owners but with the customers business owner.

Risk Management strategies are employed to assess the risk of non-payment by the customer.

If there is a positive outcome, the customer is approved and the business owner is notified.    

Step 2:

The business owner invoices their customer for goods or services that must have been provided or supplied. The customer is now the business’ debtor and owes money to the business on a specific due date as per the agreed terms.  The due date and the total sum payable form part of the invoice.  

Step 3:

The factor then performs an Invoice Verification with the customer.   Verifying the invoice amount is accurate and that the customer agrees that the amount is due on the date stipulated.

Step 4:

Only after a successful verification does the factor pay the agreed percentage (anywhere between 70 to 90% of the invoice) to the business owner, holding the balance in reserve. The business owner now has access to funds that would otherwise be locked up in the invoice.

Step 5:

On or before the due date, the factor receives the payment from the customer.  

Step 6:

The balance on the invoice that was held back by the factoring agent initially is paid to the business owner minus less any fees charged by the factor.  This is called the rebate.

With this kind of small business funding, the business owner has much more flexibility to assist with the cash flow management needs of the business.

Spot factoring, what is it and how does it work?

What is Spot Factoring

A spot factoring deal – is just as it sounds the whole ledger can be factored or just a single invoice, in other words, “spot factoring”.

Spot factoring is priced for risk as there is nothing else to offset against if the customer doesn’t pay.

The process for approval, verification, and funding is the same as for a whole ledger.

Oversight and general conduct of the customer are monitored more closely for two reasons. The first is that there are no other invoices to off-set against in the event of non-payment of the invoice. Secondly, the size of these invoices is usually in the hundreds of thousands.

How to use the Spot Factoring facility

Using a facility that allows you to finance a single invoice, or a small group of them, has advantages over other solutions. Single invoice finance:

  1. Offers flexible funding solution so you only use the facility when you need it
  2. Is available to start-up business with limited trade history as it is the strength of the customer that the factor is concerned with not how long the business owner has been operating.
  3. Can provide the support needed for acquiring materials that enable the business owner to accept or bid on larger tenders and projects.
  4. Assists with being able to offer competitive trading terms such as 30 or 60 days to customers while still getting the benefit of immediate payment.
  5. As with all factoring facilities no real estate security is required

Credit-collection Services in Factoring and Invoice Factoring

Collecting Unpaid Invoices

Invoice factoring is not just a way for a small and medium-sized business to get access to funding at short notice. It has a number of other benefits to offer as well. It gives the business the ability to utilize its own assets to the maximum because it is the business’ receivables that are being used to generate funds. This type of small business funding assists the business owner with cash flow management. The business is able to avoid taking on additional debt in the form of loans. This is because it can access small business working capital provides other benefits that can assist in the day to day operation of a small business

A source of credit to the business

A business will sell its unpaid invoices to the Factor in return for a cash advance. The amount of the advance is a percentage of the approved invoice. As a general rule, the advance is not lower than 80% of the face value of the invoice.

The business is getting immediate access to funds that have not yet become due and payable simply by using Invoice Factoring.

The strength of the debtors (invoices) is what underpins the whole transaction.

The funding is provided at a discount and is immediately available.

Provided the debtors do not become delinquent and pay outside of terms then debtor finance is a great tool. It has the ability to not only assist with the growth of a business but also their ability to reliably meet other financial commitments.

Collection services

Risk management presents a constant and ongoing challenge to all financial institutions and credit providers.

There is a set of basic information that the factor assumes the business owner will know about the debtor. This is important to enable the verification process to be completed.

Once the invoice has been assigned to the factor, follow up with the debtor and tracking responses. It will verify the due date for payment. This is part of the factoring process.

This frees up the business owner to let them concentrate on other aspects of the business

If the debtor fails to make payment on time,  the factor will commence the collection process. This can include progressing it to legal action if required.

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Three key benefits of factoring

What is Invoice Factoring

Invoice factoring is a term used to describe the short term financing of unpaid invoices.  It is a financial transaction but not a loan. IN the next few minutes we hope to explain to you the benefits of factoring.

The survival of many businesses in the SME sector depends on their ability to access funds to free up cash flow.

A business will sell its unpaid invoices to the Factor in return for a cash advance.    At its core what underpins the transaction is the strength of the debtors (invoices).

What Can I Do with the Funds Raised

Using the unpaid invoices of the business, the owner can gain access to small business working capital without much difficulty and in time to meet the necessary expenses of the business.  For business owners who have not used this type of funding before the three main benefits of debtor, finance are listed below.

  1. Accessibility to Cash:    For a small or medium business access to this type of funding means they can participate more competitively with larger businesses in their sector. Often larger businesses are regarded as being more solid as they have access to cash reserves that enable them to adapt to the ebb and flow of the market quickly or to increase inventory or production at short notice.   The absence of or accessibility to capital can frustrate the ability of small businesses to react to changing market conditions in the same manner.
  2. Outsourcing collection: The nature of the debtor finance product is that if customers are paying ‘on time’ the business would not have a cash flow problem. Another important yet time and resource consuming task that can weaken a small business’ ability to stay responsive in the marketplace is invoice collection.  Chasing up overdue invoices can be a very onerous and protracted task and many small businesses simply lack the ability to dedicate human resources to it.  This only serves to diminish their ability to ensure that debtors pay on time.  Small business cannot afford to allow invoices to remain unpaid because this impacts its working capital availability. Factoring your invoices can simplify this problem as the factor takes over all your rights to pursue the customer for payment. This includes the right to take legal action.
  3. Debt avoidance: Small businesses are less likely to be able to absorb any downward movements in the economy and are often constrained by them.  This is due mainly to the size of the business and the unpredictability of their bottom-line. The options open to small businesses if they need cash to meet an emergency expense or if they lack funds to match their expansion plans or production increases are limited.  They look for lenders willing to make a loan to them. If the business is a new one, this can prove to be almost impossible.  The loan, even if available, may be a very expensive one that results in a huge drain on the business’ finances on a recurring basis. With factoring, this debt burden can be avoided completely because the asset being used is the business’ own invoice and cash is advanced against this asset so no repayment is required.

I hope the above has explained to yu some of the benefits of factoring

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