Every business needs steady cash flow, especially in its developmental stages. A delay in cash flow can delay its growth. For example, a textile manufacturer might find it hard to take up a new order unless payment from the first one is fully received. And here’s where debtor finance comes in handy. Here are other ways in which you can use debtor finance to grow your business.
• Provide cash flow for growth: Sometimes a business may require acquiring new assets like lease property for a new office and employees to facilitate various roles like manufacturing and marketing. Or, there may come a time when a partner might choose to move on to other projects. Like a designer may need to get some property on lease to start a studio and employ new seamstresses to increase production. At the same time, he may need to cut down expenses by partnering with an external company for sales and marketing and let go of the in-house person. All this can be funded with help of debtor finance
• Bridge the gap of slow payments: Some businesses offer credit for up to 30 days or more to bulk buyers. This they do, in order to gain more customers. But in reality, it takes up to 60 days for these payments to get processed. A growing business cannot be expected to stall orders of other customers until they are paid. Here’s where debtor finance comes in handy.
• Meet operating expenses: in the case of a family-owned business, the second generation sometimes lack in funds initially to make the changes they desire. It can be anything from a change in personnel to creating departments or purchasing additional equipment. And though they may have property to pledge for a loan, it may not provide similar flexibility as debtor’s finance, like funds available at disposable within 24 hours.
• Eliminate payment discounts: With a steady cash flow, businesses can negotiate better trading terms with suppliers. And since they will have the power to make prompt purchases/production, they can eliminate prompt payment discounts to customers. This ensures a certain security, encouraging the employees to do their best without fear.
• Diffusing risk: One partner may have a higher share in the business than the other. So, when the time comes for expansion or adding more assets to the existing model, the partner with more share percentage might feel that they are more at risk, especially when it comes to business equity. But with easily accessible funds thanks to debtor’s finance, the risk factor gets minimized and conflicts like these are avoided.
In short, loaning finance is like an overdraft that helps you diversify to other ventures and reducing the risk. It helps businessmen to ensure smooth operations and easy expansions. Since debtors finance is based on the invoice from an existing order, it prevents you from investing in more than your current profits. It is a powerful financial tool that can help protect a business. And help establish better relations between the buyer, supplier and the customer with prompt payments and prompt deliveries. It acts as a great aid to make sure that business grows steadily with sufficient property, equipment, and personnel.