Frequently asked questions about debtor finance

A business requires capital on an ongoing basis to fund any cash-flow gap between paying suppliers / employees (outgoing cash) and receiving customer receipts (incoming cash). Additional working capital is often required to help fund growth into new areas or seasonal fluctuations in trade.

For most companies, their outstanding invoices (often referred to as ‘debtors ledger’) are by far their greatest asset – but it often converts to cash at a much slower rate than they would like. If debtors are paying their invoices at a slower rate than the business needs funds to purchase stock to grow, this can present recurring cash flow problems. A typical situation is when suppliers require payment on 7-days terms, while customers pay at 30-days. This leaves a gap in funding, which can be difficult to manage, especially if the business is experiencing growing demand. Debtor Finance can solve this problem.

Some of the benefits include:

• Businesses can have up to 90% of the value of their invoices available for use in the businesses within 24 hours;
• It offers a credit line flexible enough to satisfy historic, projected and seasonal sales volumes;
• Most businesses can utilise balance sheet assets to fund business growth;
• The business keeps complete control over their debtor relationships – managing their customer relationships and performing their own collections; and
• The relationship between the business and the financier is completely confidential and is not disclosed to the business’ customers.

The interest rate is determined on a risk-based assessment of the client’s business and the quality of their debtors’ book. Rates are generally comparable to prevailing overdraft rates.

We will consider lending against receivable assets only, with no automatic requirement for property security. This type of lending is not common in the Australian market and allows customers to extend current borrowing or to separate their business from their personal property assets. In addition, we will allow borrowers to influence their own rate of borrowing by increasing or decreasing the ‘loan to value’ ratio up to a 90% advance rate.

Bank overdrafts are the most common form of short term finance for businesses in the Australian market. With overdrafts, banks often require fixed and floating charges over the business’ assets, and property security, as a condition of providing an overdraft facility.

Liberty’s Debtor Finance provides funding based primarily on the value of their outstanding receivables. This means:

• More flexibility – funding is made available in line with sales volumes and facility is negotiated to support sales forecasts – not just historic sales. An overdraft often needs to be renegotiated annually, with this process providing a degree of funding uncertainty.
• More funding – up to 90% of invoice values can be advanced through Liberty’s Receivable Finance. An overdraft facility is likely to be based on a maximum 50% of the existing debtors’ book.

Factoring – Factoring is a lending facility based on the value of the business’ outstanding receivables. However, in the case of factoring, the facility provider actively manages the business’ debtors.

Trade Finance – this is another similar form of finance. However, it usually involves import-export activity and greater number of counterparties and therefore requires greater documentation.

Equipment Finance - this financing which relates directly to the lease or purchase of specific equipment or vehicles for use by the business. Liberty provides motor finance for light commercial vehicles.

Inventory Finance – this is usually suited to smaller retail businesses to fund the purchase of inventory or stock.

Small and medium enterprises which are registered companies, with an annual turnover of between A$1 million and A$100 million. They must provide goods or services to other businesses and preferably have a diverse base of revolving debtors. Liberty will approach any application with a view to how we can make the deal work. Industries which are best suited to Receivable Finance include:

• Manufacturers – Food & Beverage, Household Products, other sub sectors;
• Commercial Services and Supplies - Employment Services, Commercial Printing, other sub-sectors;
• Transportation – Freight, Logistics, other sub-sectors;
• Health Care Equipment and Supplies; and
• Telecommunication Services.

A completed Liberty Application Form with details of the company’s incorporation, location and activities, directors, shareholders, company’s financial performance and summary debtors ledger information. Supporting information would include:

• Latest management accounts;
• Last two years financial statements;
• Last month end aged debtors ledgers;
• Sample invoice;
• Last month end aged Creditors Ledger;
• Information regarding adverse trade, finance or tax defaults / judgements; and additional information will be required as part of due diligence.

The Debtor Finance product is offered via a Liberty sales team, existing Liberty introducers and other third party referral partners, such as accountants. For more information, contact the Liberty sales team on 13 90 88.