Debtor finance

Why growing businesses run out of cash

Growth is expensive. Every new customer on 30 or 60-day terms means more money spent on wages and materials before payment arrives. A business can double its sales and still find itself shorter of cash than before. Fixed-limit loans don’t help much, because the gap keeps getting bigger.

Debtor finance solves this by tying the facility to the debtor ledger itself. As sales grow, so does the funding available.

How debtor finance works

Step	What happens
Setup	The funder reviews your ledger and customers, and sets an advance percentage
Ongoing	You issue invoices; eligible ones add to your available funds
Drawing	You draw cash up to the available amount
Collection	Customers pay; the balance reduces and becomes available again

Disclosed or confidential?

• Confidential (discounting): you keep collecting and customers generally pay into an account as normal.
• Disclosed (factoring): the funder may manage collections and customers know a funder is involved. Can suit businesses without a dedicated accounts team.

Is debtor finance right for you?

It tends to suit businesses that invoice other businesses steadily, have several creditworthy customers, and are growing or have a seasonal peak. It’s less suited to businesses with one or two very large customers (concentration limits apply) or very irregular invoicing, where single invoice finance may be simpler.

Want to compare it with a line of credit? Ask us.

An illustrative example

A packaging manufacturer supplies dozens of food producers on 45-day terms. Sales are growing steadily. A debtor finance facility gives it access to most of its eligible ledger, funding growth without a new loan every few months. (Illustrative only.)

What else is debtor finance called?

Lenders, accountants and search engines don’t all use the same words. You’ll also see this entry described as Factoring, Receivables finance and Debtor ledger finance. In our A–Z index every one of those names points back to this page, so whichever term you searched, you’ve landed on the same thing. If a lender uses a name you don’t recognise, ask them to describe how the security, the term and the repayments work; that tells you far more than the label.

Where does it sit in the directory?

This entry lives on the trade, stock and asset shelf. It’s most often used for cash flow and working capital, stock, trade and invoices, and the security usually involved is invoices, stock or orders. It usually involves a little more paperwork and assessment than the quickest options, so start early. Its closest neighbours are:

• Invoice finance — Turn unpaid invoices into cash now instead of in 30, 60 or 90 days.
• Trade finance — Pay suppliers now and repay once the goods have sold.
• Import finance — Pay overseas suppliers, freight and duty before the container lands.
• Export finance — Bridge the long wait between shipping overseas and getting paid.

To compare all of them at once, filter the Loan Finder by purpose and security.

Common mistakes to avoid

• Assuming every invoice qualifies. Funders exclude disputed, overdue, related-party and some progress-claim invoices, so check eligibility early.
• Overlooking concentration limits. If one customer makes up most of your sales, the available funding may be lower than expected.
• Not reading the minimum term. Some facilities have notice periods and minimum fees that matter if your needs change.
• Using it to mask thin margins. Trade and receivables funding works best when each transaction is profitable after finance costs.
• Poor record-keeping. Clean, up-to-date ledgers and stock records make approval smoother and limits higher.

What should I ask before signing up for debtor finance?

A short list of questions saves a lot of regret. Put these to any lender or specialist before you commit:

1. What percentage is advanced? The advance rate on eligible invoices or stock decides how much cash you actually receive.
2. Which items are excluded? Know the eligibility rules for overdue, disputed and concentrated debts or stock.
3. How are fees charged? Discount charges, service fees and minimums can be structured very differently.
4. Is the facility confidential? Decide whether you’re comfortable with customers knowing a funder is involved.
5. What’s the minimum term and notice period? Exit terms matter if your business changes direction.

If an answer is vague, ask again or ask for it in writing. Good lenders are happy to explain their terms clearly.

Funding that keeps pace

If your growth is outrunning your cash, a facility built on your debtor ledger may be the right fit. There’s no credit check when you enquire, and one specialist works on it instead of passing it to funder after funder.

Please tell us your monthly invoicing, number of customers and typical terms. Accurate detail helps us size it properly. Start your enquiry.