How To Qualify For Debtor Finance When All Your Eggs Are In 1 Basket
The movement of WATER from a high concentration to an area of low concentration is called osmosis, but the movement of MOLECULES from a high concentration to an area of low concentration is called diffusion.
“What’s this got to do with debtor finance?”
It seems like molecules and water, most debtor financiers just don’t want to be anywhere near areas of high concentration, in fact they’ll do just about anything to avoid it.
So what is high concentration?
In debtor finance, high concentration refers to the number of debtors a client has on their book. If they only have say one, two or three debtors this is referred to as high concentration.
Let’s face it, if one of these debtor’s falls over, the financier having bought the invoices from the client is grasping at thin air. How will they recoup their loss?
The problem for many SMEs is that they have their eggs in only 1 or 2 baskets, it’s just the way things pan-out and can generally be attributed to a lack of capital and resources.
In addition to this, most debtor financiers also demand full ledger. For example, a client may have 14 debtors and be turning over $750K per month. The client only wants to use ‘partial’ debtor finance, say 5 clients at $200K per month.
For most debtor financiers this is a big “NO, NO!” It’s full book or nothing.
AT AR, we defy science, many would even say logic by taking on clients that may only have 1 or 2 debtors, or by taking on ‘partial’ ledger.
Mind you, the credit worthiness of the debtors has to be solid, but the point is we’ll play where others dare not tread. If you’re a financial adviser or a small business, this is handy stuff to know. Whilst you’re probably not going to rush home, turn off Foxtel, punt the Labrador out the door and hold a family conference about it, it’s definitely a concept that’s worth retaining.
To find out more about debtor finance at AR, have a look at this quick video: