Debtor Finance Seems Expensive Compared To Traditional Bank Financing. Why?
Debtor Finance can be more of an investment than a traditional bank loan due to a number of factors. The two main reasons are:
- Your property is not secured as collateral; instead the invoice is, resulting in a higher amount of risk for the financier. It is risky for a number of reasons such as fraud, failure to pay and bankruptcy.
- Heavy amounts of ongoing due diligence. This includes daily credit checks on all debtors and auditing invoices constantly. Unlike a fixed asset (property), with debtor finance, the assets (the invoices) are constantly changing. This requires new credit checks and auditing of invoices every day.
If your problem is on going cash flow and you would like to capitalise on new opportunities and want a financier that doesn’t focus on your business history but the credit worthiness of your debtors then Debtor Finance could be for you.
It’s also worth mentioning that unlike a bank, a debtor financier offers a daily service to its clients. They constantly monitor the accounts receivables and collections. You don’t get that with a bank loan.