Receivables Management for managing Business Cashflow.

I’ve talked with many businesses over the years about the benefits of Receivables Management as a tool to leverage cashflows.  Receivables Management is also known as “Debtor Finance” and more commonly as “Factoring”, which is a particular form of Receivables Management.

You can learn a little bit more about the basics of Debtor Financing at http://en.wikipedia.org/wiki/Debtor_finance which may answer some basic questions that I don’t address here.

Please feel free to contact me if you want more information on this topic, or want help accessing Debtor Financing as an option for your business.

As I mentioned, a term used to mean Debtor Financing or Receivables Management is Factoring.  This still has a dirty name for many people who remember the ridiculous interest rates businesses were being charged to access this type of facility back in the 1980’s and 1990’s.

Rest assured that in todays financial markets Debtor Financing is much more cost effective for businesses.  Typically the cost to a business is 200-250 basis points (2.0%-2.5%) above the benchmark lending rates.

So, why would you use Debtor Financing ?.  Well, the most obvious answers are:

  • You’ve issued an invoice to a customer and now have to wait 30/45/60/90 days until you get those funds.
  • If your customers are late paying, or go delinquent, you will wait even longer.
  • If you could get 70% of the money due in 30 days today, and only pay 6.5% for the privilege what sort of a return to the business can you make ?.  If it is less than 6.5% then you shouldn’t be in business … it should be more like 20% to 50%.

PLEASE NOTE: The banks don’t just give this away for nothing.  They will do an assessment of the Invoices you are proposing to use and will decide which ones they will accept (or not accept).

In the Australian marketplace there used to be a number of financial institutions offering Debtor Financing, with ANZ and NAB being the top 2 with very attractive offerings.

Unfortunately as at the end of 2009, ANZ withdrew from this market for new business customers.  However, NAB are still in this market and have over a 50% market share.

This means that:

  • They’re committed to Debtor Financing as a tool for their business customers;
  • The NAB Business Bankers understand how this tool can be made to work for their customers; and
  • When they approve of an Invoice you want to use for Debtor Financing that means they’re willing to work with you in risk-managing those Accounts Receivable.

Here is a link to the NAB Debtor Financing facility in case you would like to know more http://www.nab.com.au/wps/wcm/connect/nab/nab/home/business_solutions/3/1/2

I’ve provided a small précis below.

NAB Debtor Financing:

Suited to businesses that need a capital injection to fund business growth, or cash flow requirements, but want to fund this purely on the strength of their business sales.

What are the Benefits:

  • Funds access: borrow money based on the strength of your business sales
  • Flexibility: helping you manage seasonal and day-to-day fluctuations in cash flow
  • Convenience: ability to gain access to funds when you need it against issued invoices.
  • Limit: as your business grows and your debtors grow so does your facility
  • Accessibility:   transfer funds from your NAB Debtor Finance account into your working account via NAB Online Business and NAB Online Corporate, or by written instruction

What are the Features:

  • Credit limit based on business sales, not mortgage based fixed asset lending like all the other options available to businesses
  • Withdrawals can be made from your NAB Debtor Finance account up to your daily available limit (which automatically increases/decreases depending on the level of your sales and debtor collections).
  • No account keeping fee
  • No line service fee
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