What is Debtor Finance?

Debtor financing is an umbrella term used in Australia that encompasses a number of products that finance invoices. The most common debtor finance solutions are invoice factoring and invoice discounting.

Invoice factoring and discounting are used by companies that offer 30- to 60-day terms to customers but have problems waiting for payments. Debtor finance works by funding slow-paying invoices, which improves your cash flow and provides funds to pay for business expenses.

Do you provide 30-day payment terms to clients?

Most small businesses that sell products and services to large businesses have to offer net 30- to 60-day payment terms to their clients. In most cases, you must offer these terms to retain clients. Otherwise, clients could decide to work with a competitor who is willing to provide the payment terms they request.

However, offering payment terms has credit risks. It can also create cash flow problems, especially for small and mid-sized companies who don’t have a cash reserve and can’t afford to wait 30 to 60 days to get paid. In some cases, cash flow problems can be serious and prevent the small business from meeting obligations, such as paying suppliers or employee wages.

Debtor financing improves cash flow

Debtor finance is designed to fix cash flow problems created by slow-paying clients. By financing slow-paying invoices, debtor financing accelerates your revenues – improving your working capital and providing your company with funds to pay suppliers, wages or other expenses.

How does debtor financing work? Transaction structure

Debtor financing works by financing your invoices – usually a company’s strongest asset. The transaction structure varies based on the specific type of debtor finance solution that you decide to use. In this article, we describe how invoice factoring and invoice discounting work.

Invoice factoring

Invoice factoring finances invoices individually. The factoring company advances 80% – 85% of the invoice’s value as soon as the invoice is submitted for financing. The factoring company advances the remaining 15% – 20%, less fees, once the customer pays the invoice in full. As part of their services, the factoring company also helps manage credit and collections.

Generally, invoice factoring works best for small companies who don’t have established credit and collections departments. You can learn more by reading “What is Invoice Factoring?

Invoice discounting

Invoice discounting lines operate like revolving lines of financing. Instead of managing individual invoices, the client finances a batch of invoices. The client receives 80% – 85% of the total value of the invoices as available funds. The line is adjusted regularly as your customers pay their invoices and as your company raises new invoices.

Since the invoice discount company does not manage detailed invoice information, they do not handle credit and collections tasks. Instead, these tasks are managed by the client.

Generally, invoice discounting lines are better suited for larger companies that have established credit controls and collections procedures. You can learn more by reading “What is Invoice Discounting?

Benefits of debtor financing

A well-implemented financing programme can provide a number of benefits for small business owners. The most important benefit is that your cash flow improves, often quickly. This improvement provides financial stability, which is important for any business.

Your company will be able to extend payment terms to clients without worrying about potential cash flow problems. This capability can be important if you were not able (or willing) to extend terms in the past due to low cash reserves.

Lastly, the financing facility is flexible and is tied to your sales. The facility can increase as your sales grow. Debtor financing can be an ideal source of funding for small companies that are growing quickly.


One advantage of using debtor financing is that it has simple qualification requirements, especially when compared to overdrafts, business loans and other products. Generally, your business must be well organized, have good customers and be free of major legal and tax problems.

Small businesses can usually qualify for this programme.


The cost of using the programme is determined by the size of the financing facility, the credit quality of the invoices, the industry of the client and general risk characteristics of the account. Rates vary, so you should consult a representative directly. Learn more about costs.

Can we help you?

We are a leading provider of debtor financing in Australia. We can provide high advances at competitive rates. For more information, fill out our enquiry form and a representative will contact you soon.