Debtor finance

Many businesses use debtor finance to free up the cash from outstanding debts.

Debtor finance involves a financial institution purchasing your debts, taking a fee and providing you with the cash amount, then collecting the debt on your behalf.

While debtor finance will deliver cash and time for you to focus on other aspects of your business, it will reduce your profit margins.

Conditions apply to this kind of agreement, so it is best to seek legal and financial advice before making a commitment.

Benefits of debtor finance

Debtor finance can provide steady cash flow, with access to up to 90% of the value of outstanding invoices. This allows businesses to:

  • pay suppliers on time and receive quantity discounts
  • increase sales by offering extended payment terms to customers
  • boost stock levels for increased demand
  • match cash flow to business performance and growth
  • upgrade equipment and produce and sell more goods or services
  • avoid tying up personal assets, as debtor finance only relies on business assets.

Confidential invoice discounting

Confidential invoice discounting provides businesses with instant cash funding for most of the amount owed, without customers knowing.

Invoice discounting involves businesses making short-term loans by using unpaid debts as security.

Your business remains in control of dealing with customers and collecting payments.


Factoring is similar to invoice discounting but the unpaid debts are sold to a factoring company. Customers are made aware that the factoring company has responsibility for debt collection.

Some debtors will pay a factoring company faster if they fear their credit rating will be downgraded.

How the factoring company deals with your customers will affect what customers think of you. Make sure you use a reputable company that will not damage your reputation.

Seek financial advice before entering into an agreement with a factoring company. Agreements vary as to whether you or the factoring company accepts the risks of debts not being paid.

Learn more about managing risks in your business.

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