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Archive for September, 2009

Invoice Finance

Monday, September 14th, 2009

Invoice finance is simply the means of releasing cash against unpaid invoices. Typically 80% of the invoice is paid upfront by the invoice finance company. On payment of the invoice by your customer ( typically after 90 days)  the remaining 20% is paid to  you less any charges due to the invoice finance company.

An invoice finance facility will unlock cash and assist with a businesses cash flow. Unlike an overdraft facility which is fixed at  a certain amount invoice finance will grow as a business expands . In addition an overdraft facility is repayable on demand and so there is always the risk it could be withdrawn. In recent months we have certainly seen this happen as bankers continue to be nervous and unsupportive in these difficult times. The security that banks require to agree an invoice discouning facility also tends to be more onerous with property often required to secure a facility. An invoice finance facility relies on the unpaid invoices as security. 

Typically a factoring faciltiy  is provided on a disclosed basis and offers a full credit control service. Confidential invoice discounting is normally on an undisclosed  or confidential basis and is just a means of providing cash flow because credit control is kept in house. There are many variations offered by numerous invoice finance facilities and different finance companies have different niche products and attributes. A good invoice discounting broker will be able to advise as to  which funder will be best for your particular needs.

Lombard and Hitachi exit Broker Market

Sunday, September 13th, 2009

Last week Lombard finally closed their doors on the broker market. A few days later Hitachi followed suit. Rumour of Lombard exiting the broker market came as no great surprise however I don’t think anyone expected Hitachi to exit as well. Only a few months ago Lombard had significantly reduced the number of brokers they were dealing with and rumours of significant losses in the sector  there was only going to be one outcome.

This is still bad news for the market with the exit of  the UKs largest leasing company. There will be even less choice of funders in the market place and the ones that remain wull potentially increase their rates and be even more choosy  with whom they will do business. It is simple economics of supply and demand. The good news that there are still one or two funders remaining that are still open for business. A good independent finance broker will certainly  be able to add value and will still be able to structure a deal with the lessor known leasing companies.

Whilst funds remain tight deals will be done on the funders terms. Customers can expect higher deposits, shorter terms and the need to provide more security  such as personal guarantees. The good news is that there are rumours of a couple of foreign banks looking at entering the UK leasing market. Still tough times ahead I am afraid.

Single Debtor Factoring

Friday, September 11th, 2009

Single debtor  factoring as would suggest provides debtor finance against one single customer. As with any other factoring factoring facility funding is provided for up to 80% of unpaid invoices for up to a 90 day period.  However from the finance companies point of view providing finance against one customer can prove quite risky and as such not all finance companies will be keen to offer a facility.

It is unlikely a high street bank will provide single debtor factoring however one or two of the larger and generally more flexible and commercial factoring companies will offer a facility. However with any tricky finance deal there will be one or two caveats. The debtor  must be strong and the credit limit will need to exceed the total facility required.  In addition it is recommended that credit insurance is taken out against the debt. Therefore in the event of any this will protect not only the funder but also our customer. I think this is common sense really. A default with a good spread of customers will always be painful but more often than not can be absorbed into the business. Imagine if you had one customer and they go bust and you havnt any credit insurance. Not only will you go bust but any  personal guarantees may possibly be called upon [potentially resulting in bankruptcy. Perish the thought.

Invoice Factoring (2)

Thursday, September 10th, 2009

Invoice factoring need not only be for businesses with hundreds of thousands of turnover. XL Business Finance is helping businesses with turnover as low as £100,000 obtain finance from the most appropriate finance company.  

With a turnover as low as £100,000 it is very unlikely that a business will obtain confidential invoice discounting, however it may be possible to obtain a soft touch factoring facility. Not all finance companies will provide such a service so it is important that you take advice from a reputable and knowledgeable factoring broker.  A soft touch factoring facility will enable a business to maintain the majority of their credit control however the factoring will be provided on a disclosed basis and as such your customer will be aware of the factoring companies involvement.

If a full factoring service is required it is important that the most suitable finance company is chosen for your particular needs. Factoring provides a full credit control service and debt collection and as such it is very much a value added service.  As with any value added product you tend to get what you pay for.  The biggest comp-laint we hear about is the inability of certain financial institutions to collect money. What is the point of saving a few quid a month if you are not getting a proper service. Flexibility, a full on credit control service and the ability to pick up the phone and have a conversation with a decision maker is the key to a successful factoring relationship.

XL Business Finance is one of the UK’s top factoring specialist and has been advising clients on various financial solutions for over ten years

Declined Finance

Wednesday, September 9th, 2009

Finance companies and banks  are still short of capital. They all tell you they are open for business but in reality they are still short of cash. In our opinion are they are looking for reasons to decline deals rather than agree them. In short it is simple supply and demand. As a result interest rates available in commercial lending do no really reflect the current low bank base rate.  If you have been declined finance a good independent finance broker may be able to help you source finance. There are still a number of lessor known finance companies who are actively growing their books and very much open for business.

If you have been declined finance by a bank it could be possible you are caught between a rock and a hard stone. Businesses investing in capital equipment may find that their profitability and balance sheet is not strong enough to justify a high street finance or bank lend. There are very few  near prime funders that will take a few especially if the equipment is not a traditional piece of kit with a good residual value. Asset lenders are still very much open for business. However they will only lend against a professional valuers forced sale value typically at 80% loan to value. Interests rates are much high than the banks and nearly all deals require the directors to provide a personal guarantee. IF there is not enough value in the assets being financed it may be possible to use existing unencumbered equipment to provide additional security. Next step would be to look at taking a charge over property. Not what you want to here I know but it is very much a lenders market!

HMRC Arrears?

Tuesday, September 8th, 2009

Her Majestey’s Revenue and Customs have in many ways become the nations bank. Any business that is struggling will probably have fallen into arrears with PAYE and National Insurance. Up until recently HMRC have taken a lenient approach and many businssses have been able to negotiate an arrangement to pay any arrears without too much difficulty. Is the tide about to change?

Once upon a time a reputable firm of accountants specialising in corporate recovery were best suited to negotiate with the HMRC on your behalf. Their expertise in this area ensured the best possible deal was struck with the HMRC in terms of paying back any arrears. A plan carefully monitored by the corporate recovery firm ensured the agreed plan would have the best possible chance of success.

However in the recent recession it appears that the government have been taking a lenient approach and many firms have been able to negotiate their own deal with HMRC. In many circumstances the deal that has been negotiated direct has been just as good as a corporate recovery firm would be able to do themselves. Therefore it is difficult to see how a corporate recovery firm could add any value to the proceedings.

However it appears that the HMRC are beginning to take a more hard line approach. It may be because so many of the arrangements are failing or  a more hard line approach is being demanded from the top. No one really knows.  The fact of the matter is that in the last month or so a more hard line approach is being taken. Once again a deal negotiated wvia a decent corporate recovery specialist with a proper formulated plan will ensure the best possible chance of survival and success.

Commercial Mortgages and Bridging Finance

Monday, September 7th, 2009

In the current economic climate there seems as though there are opportunities to purchase commercial property at a discount. Whether it is your landlord wanting to release some cash or a phoenix business buying a property off an administrator a slightly different approach to commercial mortgage lending could result in a much higher loan to vale being obtained.

The very best loan to value one can expect is 70%. However if you are buying a property at below market value most banks and mortgage companies will only advance 70% of the actual purchase price. If the valuation comes in lower they ill only advance 70% of the valuation in affect which is lower of the two.

However certain banks and commercial mortgage companies have slightly different lending criteria if the transaction is a remortgage rather than a purchase. This is where bridging finance can come in useful. A bridging company will only go to 60% of the valuation which could still be more in real terms than 70% of the purchase price. At the same time a remortgage will have been agreed with a prime funder at 60-70% of the valuation. Briding finance is expensive and so in a an ideal world you would only want to be exposed to the bridging company for a maximum of a month.

Used in the correct manor  bridging finance can be a useful tool to obtain the maximum possible loan to value against a commercial property

Are banks doing enough?

Thursday, September 3rd, 2009

Welcome to what is becoming  the usual bank bashing blog. Time and time again we see the banks looking at ways of restricting cash to their customers. No doubt they think they are not doing it on purpose however when customers need the banks more than ever in these difficult times the banks continue to pull in the credit.

Yesterday we reviewed an invoice discounting facility operated by one of the big four banks. Although the business has been trading for less than 12 months most of their customers are blue chip  and as such there were no problems obtaining decent credit limits. However this particular bank would only fund up to a maximum of 10% of the total debtor book for any one customer. Therefore if one customer represented 20% of turnover and say for arguments sakes this amount was £200, 000 of turnover, invoice finance with this particular bank would only provide 80% of £100,000. Now imagine three or four customers represented more than 10% of turnover this could have a massive affect on available funds. In the case we looked at the headline prepayment was 85% of outstanding debtors however in reality only 51% was actually being funded. As one can imagine this is having a massive detrimental affect on cash flow and their ability to trade.

Not all invoice factoring companies will provide such inflexibility and a well chosen invoice factoring company can often provide the right flexibility.

Invoice Finance

Tuesday, September 1st, 2009

Invoice Finance is simply the means of raising cash against unpaid invoices. It is totally a means to raise cash and as a rule has no added value service.

However in the current economic credit crunch the biggest problem customers face is getting decent trade limits against their customers which can have an adverse affect on their cash flow. The biggest source of enquiry is customers complaining of derisory credit limits and asking if there is an alternative available. The truth is that there is very little difference between the funders however it could be argued that a larger independent will provide more flexibility than a high street bank.

We believe the most important aspect in choosing a invoice discounting facility is that a business spreads the risk. Until recently it is so easy to take an invoice discounting facility in conjunction with a small overdraft, even some Hire purchase and maybe a commercial mortgage. Remember a bank is great at giving you an umbrella but soon as it starts raising they want it back. We have recently seen an instance recently whereby a customer went bust. This affected the invoice discounting facility and because it was group banked the overdraft was withdrawn and the business went into administration. This would not have happened if the invoice finance had been separate.

 
 
 

XL Business Finance Ltd is a privately owned and independent business financing company with established links to many of the UK's leading finance houses. XL Business Finance provides a viable alternative to high street banks that lack the flexibility and imagination to provide a solution to most business users requirements. XL Business Finance can provide a full range of business financing solutions and we ensure a high level of customer service and pride ourselves on quick decisions. Our independent status will ensure any offer of funding and asset finance leasing is best suited to our customer’s needs.

XL Business Finance, Eaton Place Business Centre, 114 Washway Road, Sale, Cheshire M33 7RF UK.

 

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