Debtor Finance: Boost Cash Flow Your Business

Debtor Finance: Boost Cash Flow Your Business
Debtor Finance


Debtor finance is a powerful financing tool designed to help businesses improve their cash flow. It achieves this by converting unpaid customer invoices into immediate cash.

Debtor financing allows businesses to access the value tied up in outstanding invoices, instead of waiting for customers to settle their payment terms, which can often take 30, 60, or even 90 days.

This financing solution can be a significant advantage, particularly for businesses that operate on tight margins or experience slow-paying customers.

What is Debtor Finance?

Debtor finance, also known as receivables finance, bridges the gap between issuing invoices and receiving payments from customers. It involves selling your outstanding invoices to a debtor finance company at a discount.

The finance company then advances you a significant portion (usually up to 80%) of the invoice value upfront. Once your customer settles the invoice, the finance company will deduct their fees and remit the remaining balance to you.

Benefits of Debtor Finance

Debtor finance offers a range of advantages for businesses of all sizes, injecting flexibility and breathing room into your cash flow. Here are some of the key benefits to consider:

Improved Cash Flow

Accessing immediate cash from outstanding invoices allows you to meet your ongoing financial obligations, invest in growth opportunities, and maintain smooth business operations. This can be particularly helpful for businesses that operate on tight margins or experience slow-paying customers.

Reduced Reliance on Traditional Loans

Debtor financing can be a viable alternative to traditional bank loans, especially for businesses that may not qualify for a loan due to limited credit history or high-risk profiles. The application process for debtor finance can also be quicker and less complex compared to traditional loans.

Potential Credit Score Improvement

By consistently fulfilling your financial obligations to the debtor finance company, you may see a positive impact on your business credit score. This can make it easier and more affordable to secure traditional loans in the future.


Debtor finance can be tailored to your specific business needs. You can choose to factor all your invoices or just a select few, depending on your current cash flow requirements.

Streamlined Operations

Some debtor financing providers offer integration with accounting software, simplifying the invoice submission and funding process. This saves you valuable time and resources, allowing you to focus on running your core business activities.

Potential for Early Payment Discounts

By having immediate access to cash from invoices, you may be in a better position to negotiate early payment discounts with suppliers. This can further improve your cash flow and profitability.

Types of Debtor Finance

Debtor finance comes in two main flavours, each with its own advantages and considerations:

Invoice Factoring

In invoice factoring, you essentially sell your outstanding invoices to a debtor financing company at a discount. The finance company takes over the collection process and assumes the risk of non-payment by your customer (recourse factoring) for a higher fee.

Alternatively, you can opt for non-recourse factoring, where you take on the risk of non-payment in exchange for a lower discount rate. Once your customer settles the invoice, the finance company deducts their fees and remits the remaining balance to you.

This option is suitable for businesses that need immediate access to cash and are comfortable transferring some of the collection risk.

Invoice Discounting

With invoice discounting, you borrow money against the value of your outstanding invoices. The finance company holds the invoice and collects payment from your customer. You then repay the loan amount plus interest typically within a set timeframe.

This option allows you to retain ownership of your invoices and control the customer relationship. It’s a good choice for businesses that have a strong credit history and reliable customers, as you’ll be responsible for any non-payments.

Is Debtor Finance Right for Your Business?

Deciding if debtor finance is the right solution for your business depends on several factors, including your industry, typical customer payment terms, and your cash flow needs. It can be a particularly useful tool for businesses that:

  1. Sell on credit with extended payment terms.
  2. Experience slow-paying customers.
  3. Have seasonal fluctuations in sales.
  4. Require a cash injection for growth initiatives.

Debtor finance can also be compared to other financing options like bank loans or lines of credit to determine the most suitable and cost-effective solution for your specific circumstances.

Choosing a Debtor Finance Provider

Don’t rush into choosing a debtor financing provider! To ensure a smooth experience, research and compare companies in Australia. Look for those with experience in your industry, as they can tailor solutions to your specific needs.

Competitive rates and fees are crucial, so compare factoring rates, discount rates, and any additional charges. Online reviews, industry recognition, and user-friendly technology platforms are all good signs.

Finally, prioritise companies known for excellent customer service, as a dedicated account manager can be invaluable. By carefully considering these factors, you’ll find a debtor finance partner that fuels your business growth.

Eligibility Requirements for Debtor Finance

While specific criteria may vary between debtor financing providers in Australia, there are some general benchmarks they typically assess to determine eligibility:

Healthy Trading History

A minimum trading history of 12 months is a common benchmark, as it allows the finance company to assess your business’s stability and track record of fulfilling customer orders.

However, some forward-thinking providers recognize the potential of promising startups and younger businesses. If you have a strong business plan, a demonstrably growing customer base, and a clear path to profitability, you may still be eligible for debtor finance even with a shorter trading history.

Financial Stability

Debtor finance companies look for businesses with a track record of profitability and a manageable debt level. This indicates your ability to meet your ongoing financial obligations.

Financial stability is assessed by reviewing your financial statements, particularly your profit and loss statements and balance sheets. A healthy profit margin demonstrates your ability to generate revenue and cover your expenses.

Additionally, a manageable debt level ensures you have sufficient cash flow to service your existing debts alongside the debtor finance repayments.


While a good business credit score can certainly improve your approval odds, debtor financing can be a valuable option for businesses with limited credit history. Unlike traditional loans, debtor finance providers place significant emphasis on the creditworthiness of your customers.

By demonstrating a strong customer base with a history of on-time payments, you can mitigate the risk associated with your own credit profile and increase your chances of securing debtor finance approval.

Quality of Debtors

The creditworthiness of your customers is essentially an extension of your own business’s risk profile. Debtor finance companies will often analyse your customer base to understand your exposure to late or non-payments.

This might involve reviewing your customer payment history, credit reports, and the overall industry they operate in. Diversifying your customer base across different industries and company sizes can be a strategic advantage.

By not relying heavily on a single customer or a sector prone to payment delays, you mitigate the risk associated with non-payment and strengthen your application for debtor finance.

Minimum Invoice Value

There may be minimum invoice value requirements, particularly for smaller businesses. This threshold ensures the efficiency of the financing process for both parties. Processing numerous invoices with very low values can be administratively burdensome for the debtor finance company.

For smaller businesses, focusing on consolidating invoices that meet or exceed the minimum threshold can help them access debtor finance and unlock its benefits.


While debtor finance can be a universal tool, some providers have experience and expertise catering to specific industries. These providers understand the unique cash flow cycles, customer payment behaviours, and risk profiles within those sectors.

For example, a provider specialising in the construction industry might be more familiar with the extended payment terms common in that sector and be better equipped to assess the creditworthiness of construction companies.

The Application Process for Debtor Finance

Obtaining debtor finance can be a relatively quick and hassle-free process compared to traditional bank loans. Here’s a breakdown of what to expect:

Gather required documents: Prepare basic business information like your Australian Business Number (ABN), your most recent financial statements, and information on your customers.

Submit your application: Most debtor finance companies offer online application forms for ease and convenience. Alternatively, you may choose to submit your application via email.

Credit assessment: The finance company will assess your business’s financial health, including profitability, debt levels, and overall creditworthiness. They will also evaluate the creditworthiness of your customers.

Approval and funding: If approved, you’ll receive a formal offer outlining the terms of the agreement, including factoring rates, discount rates, and any applicable fees. Once you accept the offer and complete any necessary paperwork, the funding process will be initiated and paid within 24 hours.

The Debtor Finance Cycle

Debtor finance offers a streamlined process to convert outstanding invoices into immediate cash. Here’s a breakdown of the key stages involved in the debtor finance cycle:

Invoice issuance: You issue invoices to your customers as usual for goods or services rendered.

Invoice submission: You submit approved invoices to your debtor finance company electronically or through their online portal.

Funding Approval: The finance company will assess the invoice and approve funding typically within 24 hours.

Advance payment: You receive an upfront advance (usually up to 80% of the invoice value) from the finance company.

Customer payment: Your customer settles the invoice with the finance company according to the agreed payment terms.

Settlement: The finance company deducts their fees from the customer payment and remits the remaining balance to you.

Understanding the Costs and Management of Debtor Financing

While debtor financing offers a range of advantages, it’s important to consider some key factors to make informed decisions. There are several cost components associated with debtor finance:

Factoring fees: This is the main cost, typically a percentage of the invoice value charged by the finance company for their services.

Discount rates: The discount rate reflects the difference between the upfront advance you receive and the full invoice value.

Other charges: Some providers may have additional fees for services like credit checks or account management.

It’s important to look beyond the headline fees and consider the Annual Percentage Rate (APR) which reflects the total cost of debtor finance on an annual basis. This allows for a more accurate comparison with other financing options like bank loans.

Managing Your Debtor Finance Arrangement

Effective management of your debtor finance arrangement is crucial for optimising its benefits:

Maintaining good customer relationships: Prompt communication and clear payment terms with your customers can help ensure timely invoice payments, minimising the risk of late fees associated with delayed settlements.

Transparency with your debtor finance provider: Open communication with your finance company is essential. Keep them informed of any changes in your customer base or invoice payment terms.

Debtor Financing Trends and Additional Considerations

Debtor finance continues to evolve, with advancements in technology and features that can further benefit businesses:

Integration with accounting software: Many debtor finance providers now offer seamless integration with popular accounting software programs. This allows for automatic invoice submission and faster processing, saving you valuable time and effort.

Online platforms for faster approvals: The rise of online platforms streamlines the debtor finance application process. Businesses can submit applications and receive funding approvals quicker than ever before.

Considering Alternative Financing Options

Debtor finance is a valuable tool, but it’s not the only option. Here are some additional financing options to consider:

Small business loans: Banks and other lenders offer traditional business loans with fixed interest rates and repayment terms.

Lines of credit: Lines of credit provide access to a revolving pool of funds, similar to a credit card, with interest charged only on the amount used.

Merchant cash advances: This option involves selling a portion of your future credit card sales in exchange for an upfront cash advance.

Apply for Debtor Finance with DotCapital

Unlock the potential of your outstanding invoices  with DotCapital’s Debtor Finance solutions. We work with a network of reputable lenders to secure the best rates and terms for your business. Our streamlined application process gets you the funding you need quickly and efficiently.

Contact DotCapital today for a free Debtor Finance consultation. We’ll assess your needs and guide you through the application process. Call us on 03 8707 2892 or apply online by clicking the button below.

Debtor Finance FAQs: Expanding Your Knowledge

Debtor finance can be a powerful tool to unlock cash flow and fuel your business growth. However, you might have some questions before diving in. This FAQ section is designed to address some of the most frequently asked questions about debtor finance in Australia.

What are the risks associated with debtor financing?

The following risks are associated with debtor financing:

  1. Cost: Debtor finance can be more expensive than traditional loans due to factoring fees and discount rates.
  2. Reliance on customers: If your customers consistently delay invoice payments, you may incur late fees from the finance company.
  3. Loss of Control: With invoice factoring, you sell your ownership of the invoice to the finance company.
What is a debtor in business?

In the world of business finance, a debtor is simply your customer! They owe you money for goods or services you’ve already provided, reflected in an outstanding invoice. Debtor finance focuses on these unpaid invoices, helping you unlock the cash tied up in them by converting them to immediate funds.

What is a debtor finance facility?

A debtor finance facility is a pre-approved line of credit secured by your outstanding invoices. It functions similarly to a credit card, but instead of maxing out at a set amount, the limit is based on the value of your invoices.

Is debtor financing debt?

Debtor financing is technically a debt, as you borrow money against unpaid invoices. This increases your liabilities and requires repayment within a set timeframe. However, unlike traditional loans, it doesn’t require physical collateral and is considered short-term financing. By converting invoices to immediate cash, debtor finance can improve cash flow and even help manage existing debts by providing funds to meet your obligations.

What is DotCapital?

DotCapital is your one-stop shop for all your financial needs, including debtor financing solutions! We’re a leading Australian finance and mortgage broking company with a proven track record of helping businesses unlock their full potential.

Is debtor financing expensive?

Debtor financing isn’t necessarily expensive, but the cost depends on a few things. There are two main pricing options: factoring rates (higher, covers non-payment risk) and discount rates (lower, you take on the risk). Your business and customer creditworthiness, invoice size and volume, and any facility fees all affect the final cost. To minimize costs, negotiate rates, improve your credit score, and manage your invoices strategically. By being aware of these factors, you can make debtor finance a cost-effective way to improve your cash flow.


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