How To Determine If Your Invoice Is Eligible For Debtor Finance
How do you ensure your financier will fund your invoices?
An extensive amount of due diligence goes into determining whether an invoice is in fact eligible or ineligible for finance.
So how do you get your invoice across the line? What are the main areas that must be ticked off before an invoice is approved?
Call the office on 1300 652 158 for an appointment.
Julia: Hi, everyone. Julia from AR Cash Flow here. I’m here with the lovely Daniel, and I’m going to ask him another one of my commonly asked questions. So we’ll get started. Daniel, how do you determine which invoices are eligible or ineligible? Why don’t you start with telling everybody what that means?
Daniel: Yeah. Thanks very much for your kind words, Julia. Eligible and ineligible invoices, what we mean by that is which invoices will we finance and which invoices won’t we finance.
Julia: Okay. All right. So we’ve narrowed it down to nine reasons. Let’s start with paperwork. That’s an obvious one, but why don’t you explain that?
Daniel: We’ve been over paperwork before. Paperwork simply means do you have paperwork that evidences: (a) the work was ordered; (b) the work was complete; and (c) the paid work is due and payable. So the three things to that would be purchase order, an invoice, and a proof of debt, so some confirmation from the debtor that the work’s complete.
Julia: So if they don’t have that, ineligible.
Daniel: Correct, generally.
Julia: Number two, credit of the debtor.
Daniel: Yeah, credit of the debtor. Usually when we take a new customer on of yours, we do a credit check on them, which is usually just the Veda Search, and we’ll ask you questions . . .
Julia: What’s an a Vega Search?
Daniel: A Veda Search.
Julia: Oh A Veda Search.
Daniel: A Veda check. So we do a search to check that they don’t have any outstanding court issues or judgments or are not subject to wind up notices, and we also ask the client what’s their behaviour been like historically with them.
Julia: Okay. All right. Number three, are they a company?
Daniel: This one seems pretty obvious, but it’s often asked. We can only finance debtors or invoices to your customers that are actual proprietary limited companies. So we can’t finance natural people. So, if they’re simply an ABN holder and it’s a natural person, we can’t do it.
Julia: Okay. Ineligible.
Julia: Number four, trading history.
Daniel: Ah yes. So I briefly touched on that before. We want to know, especially if they’re large invoices, that they’ve got some sort of trading history with you.
Daniel: If they don’t have a trading history with you, we want to know that they’ve got trading history with other suppliers out there and that they’ve got a reasonably good track record. So kind of like references, trade references from you or other suppliers.
Julia: That makes sense.
Julia: And number five, can we get insurance cover?
Daniel: Yes. So a lot of our clients, their ledgers have a little bit of concentration on them or they have what’s called concentration issues. When we’ve got large invoices outstanding to only a small number of debtors, we’ll often ask, we want to be pretty sure we can get insurance cover on the debtor. So that’s like a credit enhancement on them. So yeah, usually on large exposures it’s subject to us getting QBE trade credit cover.
Julia: Okay. Moving on to number six, contract accounts.
Daniel: Contract accounts, that’s where your customer is also a supplier of yours as well. So we can’t finance those invoices.
Julia: Right. Okay. Number seven, taint due to cross aging.
Daniel: This is a good one. It’s quite technical. All that means is that if you’ve got invoices to a particular debtor that are outstanding for more than 90 days and too many of them are over 90 days or a portion of them, that means that the ledger or that debtor is now tainted due to the cross aging. The cross aging is the amount of invoices that are outstanding over 90 days. So that debtor or invoices of that debtor wouldn’t be going forward and would be no longer legible.
Julia: Ineligible. Okay. And finally, subject to further contracts.
Daniel: What about dilution?
Julia: Oh, sorry. I was getting ahead of myself. Not finally, number eight, dilution.
Daniel: Dilution, what that means is how heavy are the dilutions on the invoices. I guess what I probably should have put here is are the invoices subject to sale and return which we have covered before.
Julia: Yes, we have. You can actually watch our video on it.
Daniel: Oh, great.
Julia: And number nine, subject to further contracts.
Daniel: Yes, subject to further contracts, that simply means is that invoice a standalone invoice? Is there one purchase order for that invoice, or is it a part of a progress claim and which is what you get a lot in construction.
Julia: Okay. All right. Excellent. Well, I think that’s helped me out. I think I now can tell the difference between what makes an invoice eligible and ineligible. Thanks, Daniel.
Daniel: Oh, thank you, Julia. If you’d like to know more, check out our Facebook page at AR Cash Flow. Damn it, I always get this wrong. What is it? AR Cash Flow Trade?
Daniel: Or if you’d like an appointment, give us a call on our 1300 number and Julia will be happy to set that up for you.
Julia: Thank you.
Daniel: Thanks for watching.