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How You Can Use Debt Factoring to Increase Business Cash Flow

 



Cash flow deficiency is one of the primary reasons enterprises go out of business in Australia. In 2019, a study showed more than 51% of the companies went under due to poor cash flow within that fiscal. This is a significant concern for business owners, striving tooth and nail to maintain business continuity, keep it afloat and ensure consistent profit generation. However, even with the best of efforts, things can go south ways, especially for the SMEs, since most have financial constraints. In such extreme but unavoidable situations, the business owner can seek relief in debt factoring.   

Understanding the Concept of Debt Factoring

When all doors to cash improvement get shut, debt factoring comes into play as your financial saviour. Many business owners confuse it with debtor’s finance, but they are not the same. Debt factoring or factoring receivables is a business financing that allows you to sell your pending or outstanding invoices to a financier at a discounted value and the risk of collection is passed on to the financier. It gives the business owner instant access to cash balancing your books. The financier pays one off discounted money for the receivables ledger relieving the customer from collection responsibilities. After factoring the accounts receivables, the financier gets the debt collected at their end without involving the client.  

How Debt Factoring Can Help Balance the Cash Flow

Debt factoring has proven to be highly effective in mitigating the cash flow crisis for enterprises on a growth spurt. It helps business owners better manage their cash flow by getting paid against the pending invoices of the products or services they have previously sold. Going through a finance broker facilitates quick access to the funds, using which the borrower or business owner can re-start production, pay the suppliers, get early payment discounts, and invest in business expansion.  

Now, let’s understand how it boosts the cash flow!


  • Debt factoring improves the business’ working capital by minimizing the cash flow gap between invoice raising and payment of the invoice. 
  • The funds are received by turning the pending invoices into assets. 
  • Often business owners tap into their capital or personal funds to bridge the gap, which can always aggravate the situation. With debt factoring, you don’t have to use your assets or funds. 
  • Debt factoring increases the liquidity since it releases the capital stuck in pending invoices. 
  • Instead of waiting for days and sometimes more than a month, you get access to funds simply by factoring the debtors.
  • With debt factoring, it becomes easy to move past the extension of payment terms and financial obligations posed by late payments.   

Conclusion

Debt factoring is not a continuous financing solution like a debtor’s finance or business line of credit. It is usually taken as a last resort for business owners when their debts become a cash flow liability. Are you in a similar fix? Reach out to a reliable and reputable finance broker like Broc Finance, with the experience and an adequate network of lenders for fast access to cash. Leverage your receivables to boost the cash flow of your business ASAP.    

Source: https://www.brocfinance.com.au/blog/how-you-can-use-debt-factoring-to-increase-business-cash-flow/


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