In debtor finance, security requirements vary, but traditionally focus on the value of the debtors’ ledger, supported by a pledge of specific assets as collateral and a charge or mortgage over the business, along with the personal guarantees of directors. Typically the advance rate ranges from 70% of accounts receivable ledger value up to 90%. The remaining 30% to 10%, known as the 'retention' is released following receipt of payment of each invoice by the customer/debtor/
Debtor finance products are of two kinds: confidential and disclosed. In confidential debtor finance, the customer/end-
In disclosed debtor finance, invoices have a notice that warns the customer to pay the funds to the financier in settlement of the debt.
The biggest benefit of Debtor Finance is that it accelerates cash flow. Normally the money it costs to produce a good or provide a service is tied up in debtors and is not available for the business to use until payment has been received. Through Debtor Finance, cash becomes available well before the debtor actually pays.
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Additional benefits of Cash flow Finance include:
Take advantage of supplier discounts. Remove some of the debtor's power in the relationship. Avoid offering debtor discounts. Allows the business owner(s) to keep a greater share of their equity as a business grows. Assist with mergers and acquisitions.