Credit management specialist Debtsource has launched a solution to assess, insure, finance and manage trade credit risk.
Through a collaboration with Alternative Finance Solutions (AFS), Debtsource clients can now assess their initial credit risk through detailed research, and then couple approved debtors with the AFS invoice discounting solution.
This solution simply means that where there is a requirement for immediate cashflow against goods sold and delivered, the client may finance their invoice and get paid straight away.
AFS specialises in debtor invoice discounting solutions and was born out of the very successful private equity firm, Preference Capital (Pty) Limited, a member of the Stonewood Capital Group.
“An offering like this has been on our radar for some time as it addresses a very specific need that we see across a significant sector of our client base,” says Debtsource CEO Frank Knight.
According to Knight, the most important aspect of this solution is the ability to select specific invoices for funding.
“This means companies can reduce the overall level of funding within their business. By way of example, if a client previously approached their bankers for a facility, they would be required to provide extensive securities, pay prime plus x rates against the total loan amount, and potentially wait weeks before having access to capital. With the Debtsource/AFS solution a client can simply forecast when their cashflow is tight, pick certain invoices on approved debtors for funding and get paid within days.”
A further unique aspect of the collaboration is that AFS charges a discount fee based on a daily rate, unlike many other finance houses which charge monthly interest rates and additional fees. As such the funded invoice will only attract fees until fully paid by the debtor, meaning that the sooner the debt is paid, the less fee is payable.
Knight explains that in instances where the client has elected to purchase trade credit insurance against the debtor they wish to fund, their daily fee will be reduced, bringing a significant benefit as it provides almost immediate cashflow against the funded invoice and transfers the potential risk of non-payment to a trade credit insurance house.
“Here it is important to understand that invoice discounters, including AFS, do not take credit risk but are there to provide short-term liquidity only. Should the debtor therefore default in payment, Debtsource steps in to help the client manage the recovery through our limit guarantee, pre-legal and legal processes and the processing of a claim through their nominated insurer,” Knight says.
“There can be little doubt that the proper assessment, funding, insuring and managing of a trade credit risk provides significant competitive advantage to clients as it ticks all the prudent boxes in managing the credit extension process,” he concludes.