Debtor finance: Cashing in

At first glance, it might even seem like an unusual step to take. After all, property isn’t involved in debtor finance transactions and the money isn’t directly linked to a piece of equipment or a tangible good. Instead, it’s all about cash.

However, brokers who decide to go down this path can reap the benefits including growing their bottom line, catering to more of their clients’ needs, tapping into a niche market and growing their database.

Plus, as Wayne Smith, Scottish Pacific’s general manager for Queensland explains, brokers who do debtor finance transactions don’t have to do so by themselves.

“It’s simple for brokers to do debtor finance transactions in the sense that they can be as involved as they want to be,” he says. “All debtor finance providers pretty much have the same view.

“We accept that it’s not something that a broker is going to see every day. For that reason, we don’t expect everybody to become an expert.

“We are happy just to say, ‘Give us a name and number and a brief description of the situation and we’ll run with it’. Or some brokers ring us and say, ‘I’ll tee up a meeting with you, myself and the client. Can you come along and take it from there?’

“We’re really looking for introductions rather than full blown applications or submissions from brokers. It’s all about the opportunity for both us and the broker – they get upfront and trail commission for the life of the loan.” 

Mr Smith says Scottish Pacific is happy to work with brokers to ensure they capitalise on the opportunities which debtor finance offers and get the most they can from the transaction.

“There is some flexibility with commissions depending on which debtor finance provider you look at. For us, we’ve got standard terms, but we’re always prepared to work with the broker to understand what they want from the situation.”

Differentiating your business

Paul Lambess, owner and finance broker at CVG Finance, says that by offering debtor finance, he has differentiated his business, opened himself up to new clients and become an expert in a market segment which is under-serviced in Australia.

He says he ‘fell into’ the debtor finance market because his commercial and business clients needed help in this area.

“But then I realised that as a broker, there wasn’t a lot of competition [in this space]. There were also a lot of clients, and even some referrers, who weren’t actually aware of it.

“So it gave me a level of expertise or knowledge that I was able to pass on to clients and referrers that they hadn’t heard about previously.

“If you go and talk to someone about a home loan – well, everyone knows what a home loan is. The same goes for a commercial property loan or an overdraft.

But going in and speaking about debtor finance and the dozen or more funders that do it, you get clients’ interest and there’s a bit of expertise and knowledge that you can pass on to gain their trust.

“Ultimately, you can offer them a solution that’s really valid for them.”

Neil Tunstall, managing director of Thane Financial, says that brokers who deal with equipment finance are in a particularly good position to take advantage of debtor finance opportunities.

“These brokers need to ask their clients, ‘What will this do to your working capital situation? What will it do to your cash flow?’ Mr Tunstall says.

“And nine times out of 10, they will say that they have an overdraft,” he says. “If that’s the case, is that overdraft travelling well? Is it sufficient? Do we need to look at a way that we can help your business grow further?

“And that’s where debtor finance really comes in to play.”