Home' Forge : Vol 1 No 1 Contents 140
It’s a familiar lament for SMEs: the business is making profits, but there never seems to be money in the bank.
Why? Most likely, the profits are tied up in debtors and stock, making it hard to fund business growth.
Knowing how best to fund growth,
and then actually accessing funds,
is a perennial SME problem – the Scottish
Pacific SME Growth Index found that 61.2
per cent of SMEs cited credit conditions as
a growth barrier, while 51 per cent cited
The Index, which polled leaders of 1257
SMEs (turnover of $1–20 million) from
a range of industries around Australia,
found only one in 10 SMEs was looking
to non-bank lenders as a funding source,
which indicates a lack of awareness of the
credit options that are open to SMEs.
Peter Langham, CEO of leading
independent working capital solutions
provider Scottish Pacific, says cash flow
finance (also known as supply-chain
finance) provided an attractive option for
SMEs looking to grow.
‘Our SME Growth Index research indicated
a real lack of awareness about finance
opportunities available to SMEs beyond
the banks,’ Mr Langham says.
‘Trade and debtor finance can be used by
small businesses in a range of industries
to fund many life cycle stages, including
high-growth, start-up and management
buyout/mergers and acquisitions. It is also
a great option for importers.’
Funding high-growth businesses
Growing businesses are cash-hungry. For
a business turning away orders because
there is no cash to fund growth, a debtor
finance facility (a line of credit that grows
in tandem with turnover) will pay for itself
A typical debtor finance facility will
advance 80 per cent of the value of
receivables – so a ledger of $500,000 can
generate a cash injection of $400,000 at
As the business grows, the facility (unlike
a typical overdraft) automatically grows.
Debtor finance is one of the few forms of
finance with this flexibility.
Funding start-up ventures
Start-ups often have limited funding
options, beyond re-mortgaging or hitting
up friends and family to invest. Debtor
finance provides new ventures with access
to working capital that would otherwise
be tied up in receivables for 30 to 60 days
One advantage for an early-stage business
is that debtor finance is a self-liquidating
facility – instead of taking on additional
debt, the business receives an advance
on money it is already owed. Unlike
overdrafts, debtor finance does not require
real estate security. It can help grow the
business through enhancing cash flow to
fund staff, stock or capital expenditure.
Funding management buyouts/mergers
Debtor finance can be an alternative
to a bank loan to fund a merger or to
buy out a business. With security being
the receivables generated by a trading
business, change in ownership is easier and
provides certainty of working capital for
the new owners. In certain circumstances,
the receivables ledger of the target business
can also be used to generate funds to
contribute towards the purchase price.
Up to 100 per cent funding and risk
protection for imports is available from
trade finance specialists such as Scottish
Pacific, providing solutions to cash
flow problems from the time orders are
provided to overseas suppliers, through
the manufacturing and shipping process,
right up until the time that the payment is
received from customers.
What is debtor finance?
Debtor finance is similar to an overdraft,
but with outstanding receivables rather
than real estate providing the security.
Facilities are usually up to 80 per cent of
the value of the receivables, freeing up cash
from sales already made. The remaining 20
per cent, minus fees, is received once the
invoices have been paid.
It best suits growing businesses that offer
products or services to other businesses on
normal trade credit terms – in particular,
labour hire, manufacturing, wholesale
trade, distributors, transport, repairs/
services and printing industries.
There are now more than 4500 Australian
SMEs, with combined annual revenues of
$65 billion, using debtor finance.
For more information call 1300 332 867 to
speak to your local Scottish Pacific office.
About Scottish Pacific
Scottish Pacific Debtor Finance Pty
Ltd provides working capital solutions
to SMEs, offering the broadest range of
trade and debtor finance solutions in
Australasia. Established in 1988, Scottish
Pacific has full operations centres in
Sydney, Melbourne, Perth, Brisbane,
Auckland and China. Scottish Pacific was
awarded the 2014 Best Cash Flow Lender
by broker publication The Adviser, as
voted by brokers, in their inaugural Non-
Bank Lending Awards.
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Scottish Pacific Debtor Finance
Cash flow finance for SMEs:
when and how to use it
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