FINANCE: Debtor Finance Is The Better Alternative
Recent Western Cape Business News
MORE firms are using debtor financing to boost their cash flows.
David Cory, head of Nedbank Corporate Debtor Management, says not only are volumes of invoices from existing clients increasing, but the number of new clients is on the increase too.
“We have seen the level of market penetration increase in our business environment. However, we would like to see this form of funding gain more acceptance among small and medium enterprises.”
He says the industry has been able to lend more on debtors and it has proved successful in recovering its funding through its management of debtors.
“Debtor finance gives poorly capitalised businesses the opportunity to expand and take advantage of favourable market conditions,” he says.
Like most everyone else Cory expects 2009 to bring tougher business conditions but, interestingly, this may be to the advantage of invoice discounters.
“Some companies may find that other forms of bank credit may dry up as they – the banks – become more prudent in making finance available due to deteriorating business circumstances. It won’t be a matter of last resort, but invoice discounting will increasingly become the better financing alternative,” Cory explains.
He further notes that the SA debtor financing market has shifted from being concentrated on disclosed factoring to a significantly greater use of confidential invoice discounting.
“Invoice discounting is confidential and not revealed to the client’s customers and the client does all the administration”.
“In factoring the statements reflect that the debt has been assigned to the debtor finance house. The financier does all the administration and collects monies on the client’s behalf.”
Another change taking place is that many smaller companies are able to make use of selective invoice discounting.
“These companies often lack a good track record or may have a weak balance sheet, but may have one or two really good debtors, and we can purchase these invoices selectively and help them to expand into companies that have a larger pool of quality debtors,” Cory says.
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