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Outsourcing offers business debt options

ONE credit management option facing businesses these days is to outsource the debtor book.

Factoring houses, and some debt collection agencies, will accept the debtor book in return for about 1 per cent of the value of the invoices it contains.

Factors will also give the company up to 80 per cent of the value of that debt book immediately with the remainder – minus their fee – coming in as the debts are collected.

However, this approach is not for every business. Indeed, it is believed to be a tool best employed by small businesses because it means one less function for the business to worry about.

The access to finance through factoring is another plus.

Medium-sized and large businesses can usually afford to hire a person to arrange debt collection.

Benchmark Debtor Finance managing director Peter Langham said outsourcing the debt book made life easier for small businesses.

“Debtor collection is about consistency and persistence. It’s a full-time job,” Mr Langham said.

“A lot of small businesses can only manage to chase their debtors part-time.

“Usually the only time a small business starts chasing its outstanding debtors is when the bank manager calls and tells them their overdraft is at its limit.”

CPA Australia WA director Justin Walawski said businesses choosing to arrange their own debt collection were better off doing their homework.

“It is easier to vet credit applications than to chase outstanding accounts,” Mr Walawski said.

“If the customer is having difficulty paying, negotiate a flexible payment solution that allows them to meet the debt over time.”

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