Beat The Slow Payers

Factoring can improve cash flow, covering the payroll or funding growth

- Anthony O’Brien

Waiting for customers to pay an invoice is a major bugbear for small business owners. Slow payments create cash flow challenges and some businesses are now looking beyond traditional bank overdrafts to “invoice finance” (also known as factoring or debtor finance) to cover shortfalls. With factoring, your facility limit is based on your accounts receivable balances – in other words, your outstanding invoices.

By using factoring, it’s possible to avoid the frustrating 30- or 45-day wait – and it’s sometimes longer – for customers to pay their invoices. Moreover, most debtor financing facilities don’t require real estate security such as the family home to enable your business to access finance.

Growth industry

There are more than 4000 Australian SMEs, with combined annual revenues of $65 billion, using debtor finance, according to the latest industry figures.

Banks including NAB and Westpac offer factoring services, as well as the likes of listed entities such as Scottish Pacific Business Finance, which is part of the Scottish Pacific Group (ASX: SCO). Globally, FCI (formerly International Factors Group) data shows the factoring industry registered trading volumes of more than ¤2.35 trillion ($3.5 trillion) in 2016, and for the past 20 years it has grown at over 9%pa.