Why brokers need to understand debtor finance

Promoted by EarlyPay3 minute read

While SMEs naturally go through the ebbs and flows of changing business landscapes, there’s no doubt the pandemic followed by rising interest rates has hit some bottom lines. As such, Earlypay’s Lee Trego joined The Adviser Podcast Network to discuss how debtor finance can help.

Q. What trends are you seeing for SMEs at the moment?

We’re seeing that business owners are taking action and inquiry levels are incredibly high at the moment, both through our web-based channels and our referrer-based channels with brokers. That shows that business owners are feeling the impacts of the economy, whether it’s just hearsay and stress of the press saying that ‘we’re about to hit recession’ or whether it’s truly impacting their business. Businesses are taking action to explore their options, but they’re certainly in need of an adviser to navigate the unknowns and find the best solution.

Q. What are the essential things that a broker needs to know?

Debtor finance operates differently from seeking loans against various assets to fill cash gaps. Instead, it involves advancing funds based on invoice values. This essentially leverages unpaid invoices as assets within the business, releasing a portion of their value as usable cash for business operations. This principle is central to our educational initiatives for brokers, where we emphasise that debtor finance accelerates existing cash within a business’s cycle.

The substantial impact this has on a business’s growth potential and adaptability during uncertain times is remarkably potent.

Q. Who are the prominent users of debtor finance at this time?

The industries using debtor finance vary, but primarily we see high cash need businesses, often in trading sectors like logistics, transport, manufacturing, labour hire, and equipment rental. These sectors involve B2B trading with credit terms and straightforward invoice-based transactions. Economic trends also influence demand – mining services in Queensland, labour hire in northern NSW, and infrastructure development in Victoria. Brokers play a crucial role in guiding SMEs toward these finance options, especially considering that many SMEs lack awareness of available solutions.

Q. What does Earlypay’s education program involve?

The educational aspect involves moving beyond finance products and delving into assessing a business’s cash needs, including financial ratios and understanding cash conversion cycles. This knowledge equips brokers to explain such concepts to clients, fostering trust and better interactions. As an industry, our goal should be more than selling finance products to clients who lack understanding. This is why we’ve developed an accredited scholarship program for brokers, aimed at enhancing their expertise over a modular program.

Q. What are the common FAQ from the third-party channel

First, it’s essential to remember that debtor finance is niche, focusing on B2B transactions and credit terms. Second, a common misconception is that debtor finance is solely for distressed businesses. While it aids those in distress, it’s equally beneficial for rapidly growing or healthy businesses aiming to diversify working capital funding. Third, unfamiliarity can hold brokers back. We say if you typically deal with equipment or property, don’t hesitate to reach out. Don’t let self-doubt prevent you from considering debtor finance as the right fit.

Lee Trego

National Head of Growth

Early Pay

Earlypay offers a wide range of financing options. Whether you’re looking for a quick cash flow boost, additional...

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