A Comparison between Debtor Finance and a Bank Overdraft

Banks typically set & limit business overdraft levels based on a company's trading history, thus providing the advantage of a lump sum capital injection. This means that an overdraft is a backward looking, rigid way of financing company growth, with the worrying disadvantage that it could be withdrawn at anytime, especially in today's business climate. In direct contrast, an alternative business funding option is revolving debtor finance such as an invoice factoring or invoice discounting facility that grows with a company's sales day by day and is only constrained by the level of invoiced business transactions!

Debtor finance utilises what is for many "small medium enterprises" is their primary asset, i.e. the outstanding value of any trade debts offered on credit terms. When a company increases its business levels and therefore the value of any outstanding invoiced debts, then a flexible cash flow solution such as invoice factoring or invoice discounting automatically expands with those debts thereby filling any potential funding gap for supplies, raw materials etc.

Invoice finance is therefore an asset based facility, which can accommodate business expansion, typically giving fast access to cash up to 85% of your outstanding trade debts. Cash raised in this way can be used to reduce or complement an overdraft facility, but more importantly maintain cash flow or working capital.

For specific information on factoring or invoice discounting solutions, the way they work, costs and the option to insure against bad debt (non recourse facilities) visit the relevant web pages on out site.

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