Personal risk

From a broker point of view, there has always been a tendency to persuade their clients into working with local banks to raise capital. While this is a good option for some - companies should not be putting all their eggs in one basket with these institutions, as interest rates are high and so is the risk. It is a particularly slippery slope for any business that owes money to the bank - especially when their own debtors aren't paying on time.

Another option that should be avoided at all costs is business leaders using their personal home as security. When times are tough, it can be easy to look inwards to raise the necessary capital for expansion or even to pay bills, but risking their home and the future of their family just isn't worth it.

Instead of these two risky possibilities, brokers are now encouraged to learn more about and investigate recommending debtor finance.

Debtor finance in brief

On a basic level, debtor finance involves a financial institution such as 180 Group purchasing the debts of a business. After paying a small fee, the financier then provides the business with up to 90% of the outstanding invoice the following day after the invoice has been raised. The debtor financier can then provide the backup collection service (if required by the client).

This system is quick and easy to set up and unlike an overdraft, the funding lines grow with the business. The process means that outstanding payments are made in good time - allowing the business to have cash on hand for expansion and other opportunities. 

This concept has taken off considerably around the globe - with the UK a prime example of a flourishing debtor finance market. According to a leading provider, the UK has between 46,000 and 48,000 businesses using debtor finance on a regular basis. As a result, these organisations are turning over around £212 billion per annum (AUD$419 billion).

Compared to Australia, the UK debtor finance market has matured greatly over past years and is now one of the most popular options for businesses seeking to improve their cash flow and reduce costly debtor days. While debtor finance uptake has been slower in Australia, there are an increasing number of providers in the market today and as this develops further it should become a mainstream option for brokers and small businesses.

In fact, according to Deloitte, the local debtor finance market grew nearly six-fold after the turn of the century - beginning at just $11 billion in 2000 and expanding to $59 billion by 2010. In the five years since that estimation, debtor finance has gained more attention Down Under and is certainly beginning to catch UK counterparts.

Debtor finance relationship with brokers

With the broker-business relationship key when it comes to buying and selling financial or non-financial products, it's important to recognise how the two parties can work together to do the best for the organisation.

Debtor finance providers will ensure that brokers are kept informed of any decisions and progress in retrieving overdue payments. As the broker has in-depth knowledge about the business on hand, it can be easier for the debtor finance company to understand the organisation and how to approach the situation when it comes to collecting outstanding debt.

Debtor financiers are here to work closely with brokers and it is a concept that businesses are now interested in and as such require direction and consultancy.

The future?

Industry insiders believe that for brokers to have a better relationship with their clients, they need to work with alternative financiers to meet their client's needs.

If debtor finance services remain off the table, they could find their business clients looking elsewhere. The crux of the matter is that businesses understand what is available today and need their current broker to be fully informed and up to date on all products available to them.