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The lead up to Christmas is busy, as businesses work to finish projects and close for the holidays as quickly as possible. This often leaves invoices unpaid and cashflow tight.
A Christmas rush in more ways than one
In anticipation of the Christmas rush, many businesses outlay more capital than usual on inventory and staffing. The financial fruits of their labour often is not seen until well after Christmas, as many of their customers shut down to enjoy the festivities and defer payment of invoices.
This may leave businesses unable to pay their own creditors and staff.
Rather than erring on the side of caution by not ordering as much stock and missing out on lucrative Christmas sales, businesses may solve this conundrum with a debtor finance facility. The facility can release up to 85% of the equity from yet unpaid invoices, and unlike banking funding lines, does not require real estate security.
One just has to look at figures from the Debtor and Invoice Finance Association to see how businesses rely on this type of finance over the Christmas period. In 2015, there was $16 billion in Debtor Finance turnover during the three months to December - a full $1.5 billion more than the previous quarter.
In fact, over the previous eight years, the data shows that Debtor Finance activity is higher in the December quarter than at any other time of year.
Undoubtedly, this is a sign that assistance from trusted brokers in setting up a Debtor Finance facility can make all the difference to business owners facing seasonal cash flow pressures.
Is It Suitable?
Whilst it is a popular method of accessing a revolving line of credit, Debtor Finance is not for all businesses. A debtor finance facility may be suitable if:
- Products or services are sold on credit terms
- Invoices are assignable, collectable and unconditional
- The business has experienced management/directors
- The business uses a suitable debtor management and accounting system (e.g. MYOB, Xero, Quickbooks etc)
- The businesses operates in industries such as: Manufacturing, Wholesalers, Import & Distributors, Transport & Logistics, Labour Hire, Printing or Business Services
A Christmas Gift That Keeps On Giving
Besides solving seasonal cashflow pressure, Debtor finance assists businesses that need a capital injection for other reasons, including:
- Looking to grow, expand operations or take on significant new customers
- Under cash flow pressure with existing funding arrangements
- Experiencing slow paying customers
- Struggling to pay suppliers or the ATO on time
- Planning a management buy-out, merger or acquisition
- Looking for a more flexible and competitive alternative to existing arrangements
Brokers should look to make sure that any debtor finance solution that they recommend to their clients will not be a burden to administer, however. With no month-end reconciliations and unlimited free uploads and overnight drawdowns, Classic Funding Group is well poised to help there.
Make the most of the seasonal Debtor Finance rush to fill your own Christmas stocking with the Classic Star Rewards Program, by earning $1,000 for every $500K of debtor finance settled.
Contact the Debtor Finance team at Classic on 1300 780 895 to find out more.
