Debt factoring continues to grow in Australia.
The industry generates a turnover of more than $63 billion a year.
Debt factoring is also known as invoice discounting, factoring, debtor finance and variety of other names depending on the financier and the nature of the product.
It basically means selling your unpaid sales invoices to a financier who will give you cash for them upfront, so you don’t have to wait for your customers to pay.
The largest client segments are wholesalers and manufacturers with 35% and 20% share of the market respectively.
Both industries are well suited to debt factoring because of the transparent nature of their relationship with customers.
Financiers can be confident they will get their money back when products and sales easily verified.
The next largest segments are labour hire (11%), transport and storage (8%) and property and business services (8%).
Finance companies deem that companies operating in these areas are good payers.
That doesn’t mean other riskier industries are excluded. Companies which specialize in debt factoring also cater for the construction, agriculture, mining and retail sectors but require a strong paper trail and even property security because of a perception that there is a higher risk of default.
Debt factoring is a powerful tool which companies can use to increase cash flow.
Large companies can put long-term, confidential, multimillion dollar facilities in place.
Smaller businesses may just want to raise funds by factoring a single invoice worth a few thousand dollars.
A range of finance providers can cater for every segment of the market.
At the top end are Westpac and NAB who prefer to work with profitable blue chip clients.
The smaller banks such as Suncorp and independents, such as Bibby Financial and Scottish Pacific, occupy the next tier.
The third tier is dominated by franchised operations such as Fifo Capital and and quite a number of micro lenders who raise funds privately.