Businesses are favouring alternative financing strategies such as debtor finance to fund growth, with new figures released by the Institute of Factors and Discounters (IFD) revealing total factoring and discounting turnover for the June 2010 quarter reached $14.1 billion, an increase of $716 million or 5.3% on the March 2010 quarter.
Factoring turnover was $844 million and discounting was $13.3 billion. The report also revealed that close to 5,400 businesses were using debtor finance facilities across Australia.
Rob Lamers, chief executive of debtor finance firm Oxford Funding (a wholly-owned subsidiary of Bendigo and Adelaide Bank) said the industry’s growth is being driven by a variety of elements. “Despite being on the back of a recovering economy, businesses are still taking on average over 50 days to pay their debtors, which is indicative of the cashflow constraints that many businesses continue to face,” he said. “This form of finance appeals to SMEs because security is held over business assets rather than real estate. The growth of our industry is inevitable as more businesses become increasingly aware of the benefits of debtor finance.”
Wholesale traders were the biggest users of debtor finance (33% of total receivables) with many feeling the pain of a drop in retail spending and consumer confidence. Manufacturers (21%) were the second highest users of debtor finance, followed by property and business services (10%), labour hire (9%) and transport and storage (8%).
Confidential invoice discounting, where a finance company “buys” a business’ debtors’ ledger and provides immediate funding of about 80% of the amount owed without the knowledge of the business’ debtors – is still the most common form of debtor finance. However with managing debtors becoming more onerous, an increasing number of businesses are turning towards factoring where the financier manages the debt collection on behalf of the customer. This category grew a solid 13% from June 2009.
For the quarter ending June 2010, businesses in NSW/ACT remained the biggest users of debtor finance (37%), followed by Victoria (25%), Queensland (21%), WA (9%), SA & NT (8%) and Tasmania (0.3%).