3 key factors behind the rise of debtor finance
Debtor finance has been a growing industry in Australia for some time now. Many companies are seeking help with covering their receivable debts.
Debtor finance has undergone a steady rise in Australia. Statistics from the Debtor and Invoice Finance Association (DIFA) show that in the March quarter of 2017, total debtor financing was up 4.3 percent on the year before. This forms part of a trend that has seen total annual industry turnover rise from less than $25 billion in 2010 to nearly $40 billion this year.
There are clear reasons for this growth, and understanding them can help businesses understand the best way to maintain their cash flow.
1. Companies are working on longer payment terms
In recent years, we've witnessed a trend in which companies are demanding more time to pay their debts. Instead of taking 30 days, they're asking to take 60 or 90. Because the SMEs rarely have much leverage in these negotiations, they usually accept - which can lead to a cash flow gap.
Research from Xero revealed that 83 per cent of small businesses struggle with an excess of red tape that keeps big businesses from paying them on time. By agreeing to longer payment terms, SMEs can find their cash flow grinds to halt - which is where debtor finance can keep a company ticking along.
As our sales manager Arthur Athanasopoulos recently told The Age, "debtor finance gives those [small] businesses access to a large part of their outstanding invoices, so they can continue to grow their own operations without waiting to be paid".
2. Recent macro-prudential lending restrictions
Recent concerns about residential lending have had a significant impact on business operators in Australia. Guidance from the Australian Prudential Regulatory Authority and the Reserve Bank of Australia has seen lenders increase capital requirements, lending restrictions or criteria, and interest rates.
The impact for businesses is that overdrafts or business loans can be more difficult to secure, pushing companies to find alternative funding options like debtor finance.
3. More widespread awareness of debtor finance
Another reason debtor finance is more popular is that, quite simply, more people know about it. Just 10 years ago it was a niche market, but more and more SME owners have come to understand the value of getting financing help outside of traditional channels.
Specifically, operators now have a greater understanding of the benefits that certain debtor finance companies can offer. Every provider of funding is different, but the Classic Funding Group model has some specific features that make it very appealing for business owners.
For example, there is no need to put personal property (like the family home) up as security, and our confidential solutions mean client relationships can be maintained as normal - something not every debtor finance provider (and nearly no bank) can do.
The rise in debtor finance means a rise in solutions that can be tailored to your business' specific needs. Contact us today if you'd like to know more.