Lender Spotlight: Scottish Pacific Business Finance

Talk to two or three providers about debtor finance. Explore how it works and become familiar with the features and benefits.

For brokers already operating in the commercial finance space, particularly equipment finance, the chances are you already have clients using, or who could be using, debtor finance. Unlike equipment finance, you will find that most, if not all, debtor finance providers will not require you to be accredited and will actually undertake most of the work involved in selling and settling the facility, so it’s not difficult at all to introduce into your business.

Q: How do you identify a debtor finance client?

The first thing to do is check they are in a suitable industry, to avoid introducing the idea when it’s not appropriate. The key is to look for businesses selling to other businesses or government bodies, on standard trade credit terms (not progress or milestone terms).

The Trade Debtors/Trade Receivables on their balance sheet should be looked upon as possible security, just like a piece of equipment or property. The business could use this security rather than risk the family home, or increase their borrowings to improve working capital. Debtor finance is used in an increasingly wide range of industries, but as a guide some of the main industries where it works exceptionally well include labour hire, transport, recruitment, wholesale, manufacturing, business services and printing.

Q: How should brokers bring the debtor finance conversation up with their client?

Once you have identified that the client is in a suitable industry, contact some debtor finance providers to obtain their view. In five minutes, you should receive confirmation or otherwise of whether your client would suit a debtor finance facility. Only then should you talk to your client. That conversation needs to feature questions around cash flow and personal ambitions. Are they happy using the family home as security for business lending? If they are looking to exit the business later, it’s easier to do this if the business is self-funding. Are they turning away business because they can’t meet cash payments due to suppliers, or they can’t meet increased wages? Is the overdraft with the bank at its limit? If they answer yes to any of these questions, you can talk to them about how debtor finance can assist.

Q: What are some misconceptions brokers have about debtor finance?

There are two main misconceptions that are pretty easy to counter. One is that debtor finance is too expensive. Compared to early settlement discount or credit cards, certainly not. Compared to borrowings secured against personal property, it is more expensive, but not overly so.

The question has to be, can a business afford not to use debtor finance so that it can grow? If debtor finance provides the working capital requirements to grow the business, it will pay for itself. If it can be done without using assets outside the business, it provides for a better return on capital and makes any succession planning a lot easier.

The other misconception is that only struggling businesses need debtor finance and that’s certainly not the case. There’s a growing awareness of debtor finance as a viable long-term funding alternative for SMEs. Debtor finance should be viewed in a similar light to overdrafts. It is a means by which to meet the everyday working capital requirements of a business.

More and more businesses are turning to debtor finance to get away from having to offer the business owner’s home as security and release the business from restrictive bank covenants. This allows the business owner to build their personal net worth.

Q: How do you support brokers who are looking to diversify into debtor finance?

Our business development managers meet regularly with brokers to discuss potential cases and progress opportunities. We also provide marketing materials, which, for the more prolific introducers, can be dual branded. We are always at the end of the phone should a broker have a question.