Debtor finance can be a vital tool for small to medium businesses that need to keep their cash flow situation in check. MPA speaks to Wayne Smith of panel of Scottish Pacific Debtor Finance to find out how brokers can get a foothold in the market
Debtor finance can be a vital tool for small to medium businesses that need to keep their cash flow situation in check. MPA speaks to Wayne Smith of panel of Scottish Pacific Debtor Finance to find out how brokers can get a foothold in the market
The debtor finance sector is a fast-growing area of SME finance that’s going through a continued coming of age in Australia. That’s the message from its representative body, the Institute for Factors and Discounters of Australia and New Zealand (IFD).
But what exactly is it? According to the IFD, debtor finance continues to stamp its mark as a legitimate funding alternative, providing an increasing number of Australian SMEs with a means to convert their unpaid and outstanding invoices to cash.
With 62% of business payments being made late and Australian businesses waiting more than 52 days for payment during the December 2012 quarter, according to the latest figures from Dun & Bradstreet, there certainly appears to be a market to provide cash flow solutions for businesses who are sitting on unpaid invoices.
But just how can you go about locating those potential clients whose businesses are in need of a cash flow boost?
MPA speaks to Wayne Smith of panel of Scottish Pacific Debtor Finance for the lowdown on how brokers can add debtor finance to their product arsenal.
Wayne Smith, Queensland general manager, Scottish Pacific Debtor Finance
What are the key features of debtor finance that brokers should be aware of?
A: A line of credit linked to the value of the receivables ledger (typically 80%). As sales grow, so does the amount of finance available. No real estate required (in the vast majority of cases). It’s suitable for businesses that sell to other businesses on standard trade credit terms, and raise invoices either when goods have been delivered or services have been completed.
Who are the typical clients for debtor finance?
A: It works particularly well for temporary labour hire businesses, transport companies, manufacturers and wholesalers/distributors – typically growing businesses. But it can be used for bank refinances, turnaround situations, mergers and acquisitions, and start-ups.
What are the key features of your debtor finance products?
A: Clients can access 80% of the value of invoices raised within 24 hours, and the balance (less fees) when the invoice is paid. The arrangements can be disclosed (ie, our client’s customers would be aware of our involvement) or confidential. With our range of disclosed products there is an option for us to perform the credit control function for our clients – making calls, sending reminder letters and issuing month-end statements, etc. Many of the smaller businesses really like that service as it enables them to get on with running the business and making sales.
Do you have any advice for brokers in terms of generating debtor finance leads?
A: Look at the sectors their business clients operate in. If they are in the preferred industries mentioned earlier then debtor finance is a good option for them. Other industries are also suitable, but have a conversation with a debtor finance provider before jumping in.
What level of debtor finance knowledge and education do brokers require? Do you provide training in this area?
Most debtor finance providers would not expect the broker to fill in an application/submission. At Scottish Pacific, we are more than happy to run with a name and contact number, and will still pay full upfront and trail commissions for the introduction. The trick is in identifying the opportunities, and most debtor finance providers will invest time in educating a broker who is keen to look for opportunities. We will also attend and present at PD days etc. Ongoing help and guidance is certainly available for brokers who are interested in sourcing and placing debtor finance opportunities. Our BDMs are only a phone call away and are always happy to chat through potential cases.
How competitive is remuneration for brokers who provide debtor finance?
A: The combination of upfront and trail makes it very lucrative and, whilst there are standard arrangements, it is possible to vary them in specific cases.
How long do debtor finance arrangements typically last for?
A: Most standard agreements run for 12 months plus three months’ notice. At Scottish Pacific the average client life is circa five years, which we believe is actually longer than the average mortgage, and the trail is paid for the life of the deal.
Are there any further cross-selling opportunities that brokers can leverage off once they have secured a debtor finance client?
A: Some of the favoured sectors for debtor finance also provide good opportunities for asset finance – transport and manufacturing as examples. If debtor finance has been used to remove the family home from the security equation it is then possible to use the home for other purposes – leveraging up and getting into an investment property as an example. At Scottish Pacific we also have trade finance products which can be a great cross-sell for the broker if the client is an importer.
The advantages of debtor finance
- Why wait 30, 45 or 60 days to get paid? Unlock up to 80% of the value of your debtor book immediately.
- Why use your home to secure business borrowings? Let the business support itself and use the equity in the home for something else.
- If your business is growing there will come a point where traditional overdraft facilities are capped by the value of the real estate security available, but the business needs more. A debtor finance facility grows in line with turnover – more sales equals more credit.
