Debtor finance

Debtor finance is a form of short‐term borrowing often used to improve a company's working capital and cash flow position. It allows a business to withdraw money against its invoices before the customer has actually paid. To do this, the business must have completed the work and issued the invoice to the client. The company then approaches a lender who offers debtor finance and borrows a percentage of the value of its invoices, effectively using the unpaid invoices as collateral for the borrowing. There are two types of debtor financing: invoice discounting (where the client is not aware that the company has borrowed against its invoice) and factoring (where the client is aware of the loan and pays the invoice amount directly to the lender).