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Archive for January, 2010

Factoring Contractual Invoices

Friday, January 29th, 2010

Following a recent blog refinancing contractual invoices please find below some summary pointers re factoring and invoice discounting of contractual debt.

Release of funds against uncertified invoices

Confidential. Ie customers are unaware of the finance companies involvement

Funding complimentary with most industry contracts

Dedicated specialist management team sales/operation including QS resource

Funding available to su[pport SMEs

Contractors from start up to £50m turnover

Funding requirement up to £3.0m

Most industry sectors

Growing companies with additional working capital needs

Often operating on restrictive bank facilities

 

XL Business Fiannce has first hand experience  of helping business organise contractual invoice financing. Give us a calltoday to find out how we can help you

How to choose an invoice financing company

Friday, January 29th, 2010

Ok so we have established over the last few blogs that as the UK emerges out of the recession that using banks for working capital funding and in particular bank overdrafts is probably not the best form of finance. However there are so many invoice financing companies available how do you know which one will suit your particular business and who will give you the best deal. There are many factors that should be taken into consideration when choosing a provider. First there is a big difference between invoice discounting companies and factoring companies. The finance companies that are good at factoring are not always good at invoice discounting and visa versa.

Although both financeproducts will release cash against unpaid invoices of up to 80% factoring is more more of a service orientated product providing credit control as an added benefit. The idea is that you outsource this to the factoring company who will chase your customers and make sure the cash comes back to the business in a timely fashion. The cost of the factoring service is minimal compared with employing a full time credit controller. However with factoring cheapest is not always best. Although there isn’t a massive amount of difference between costs you do tend to get what you pay for. If you pay peanuts for a facility you will probably get monkeys chasing your customers if they can be bothered at all.

The service aspect is less important when it comes to invoice discounting however the bigger the financial institution the further you are away from a decision maker there if you need some flexibility a smaller company can provide quicker turnarounds. Confidential invoice discounting as it suggests is kept secret from your customers and it provides a working capital facility that unlike a bank overdraft grows with your business.

Why Invoice Factoring is better than a bank overdraft

Wednesday, January 27th, 2010

Hopefully now that we are out of the recession we will once again start to see businesses grow and to flourish. The benefits of invoice factoring during a period of growth are obvious however many businesses will be tempted to go down the overdraft route which in the long term may restrict a businesses cash flow and ability to operate from a liquidity point of view. It is also important that we choose the right factoring or invoice discounting company because not all of them are the same and they don’t offer the same level of funding and flexibility.

The two main problems with bank overdraft the level of the facility is often restricted by the amount of security available. A token overdraft facility without providing additional security  may be available depending upon the level of profitability however more often than not it is never enough. Therefore as a business grows and you need to increase the amount of working capital it may be difficult to obtain an increase. Secondly overdrafts are repayable on demand. Until the recession I don’t think anyone believed the bank would pull overdrafts however during the credit crunch and the recession the banks have shown their true colours. We have heard horror stories about the banks withdrawing overdrafts and forcing companies into administration. With factoring or invoice discounting, so long as you don’t breach the terms of the facility it is not possible for the facility to be withdrawn. And even if you breach the terms of the facility it is more likely that your factoring or invoice discounting provider will work with you to a satisfactory solution.  It is therefore important that you choose your factoring or invoice discounting company carefully to make sure they are approachable and potentially flexible. It is more likely this will not be a bank owned provider but this doesn’t mean a facility will be more expensive.

Protect your cash flow with invoice discounting

Tuesday, January 26th, 2010

News on the high street today is that we are finally out of the recession. This is great news however don’t expect the banks to suddenly ease up on their underwriting criteria. We believe that it will be many months possibly years before the banks get back to where we were before all this kicked off.

Hopefully we will see businesses once again seeing an increase in turnover and as a result more profitable times ahead. Any increase in turnover will undoubtedly see an increase in working capital requirement. Do you really want to rely on the bank overdraft to provide the necessary working capital for your business? I don’t think so. While a business is expanding invoice discounting will provide the perfect cash flow finance facility that will grow with your business.

XL Business Finance has been helping businesses for over 10 years with their invoice discounting and factoring needs. Both are forms of invoice financing that will release up to 85% of unpaid invoices immediately. Providing there are no added complications to your business factoring or invoice discounting facilities can be up and running in a couple of days.

Although an overall funding limit will be set against your business this is reviewed on a regular basis and will grow as your business expands. As and when your customers pay you typically in 90 days from the date of the invoice the proceeds are used to repay the initial 85% advance and the remaining 15% is paid back to your business less an interest payment and a service fee. Interest is charged at a percentage over base rate or Finance House Base Rate and the service fee can range from 0.2% of turnover to 2.5 % of turnover depending on the whether you are utilising factoring or invoice discounting.

Both products are excellent for a businesses cash flow and we can help you obtain the most appropriate funding product.

Credit limits for factoring finance

Monday, January 25th, 2010

One of the biggest issues facing small businesses in the current financial climate isthe lack of funding against certain customers. It is all well and good obtaining a factoring facility with a headline 95% prepayment if the finance company restricts funding against certain customers. Unfortunately many businesses will place that invoice finance with a factoring company promising the earth however if you are not careful you will end up with a finance company that potentially will not deliver.

When choosing a factoring comapny it is well worth asking the potential funder what credit limits they will place against your top ten customes. You will be surprised how this will vary across the number of available factoring companies. XL Business Finance has ten years experience of helping businesses choosing the right finance company and as such we can add value to your business by doing all the hard work.

In addition it is worth considering the overall credit limit. A bank owned factoring company although may offer a cheaper facility they are less likely to increase the overall funding limit as quick as an independent factoring company. Therefore as the turnover of the business increases you may find that funding is restricted. A potential customer told us recently that he wished he had chosen a more flexible bur only slightly more expensive independent company rather than the slightly cheaper less flexible bank based factorig company. A change of factoring company resulted in a much increased availability and more cash which massively helped the cash flow and performance of the business.

As discussed in previous blogs there are many criteria we will consider when choosing the right finance comapny. Size, location, quality of the debtor book, profitability, length of time established and market sectoir are all important factors.

Business Finance for MBOs

Sunday, January 24th, 2010

There are two ways of obtaining business  finance for MBOs. Firstly banks can do cash flow lends or an asset based lender can finance the assets within the business to provide the cash. The problem with banks is that during the recession they have had their fingers burnt with cash flow lends. Significant amounts of money are lent against the future profitability of the business. There can be potentially little security for the banks and  it easy to see why the banks have been writing off significant amounts of bad debt. During 2009 banks were doing hardly any cash flow lends however during 2010 we can expect this to increase as the economic recovery start to take effect and the banks relax their cautious underwriting approach.

Structured lending or asset based lending takes a slightly different approach to providing loan facilities. Asset based lending usually starts with an invoice discounting facility which will release up to 90% of a businesses unpaid invoices.  On the back of this it might be possible to obtain some form of revolving stocking facility typically at 50% of  the value of the stock. An asset based lender will also advance an amount against the value of the assets probably around 70% of the forced sale value. Money is advanced typically with a 3 year pay back. Certain finance companies also provide Enterprise Finance Guarantee Funding usually at the amount equivalent to any directors contribution to the business.

The problem with both these two forms of financing is that you are relying on one finance provider and as such having eggs all in one basket will leave the funder with an awful lot of control over your business. Whilst it is not possible to split stocking finance away from the invoice discounting it is certainly possible to use a unrelated leasing company to provide funding against plant and machinery. Refinancing existing machinery is relatively easy to do provided there is some value in the kit.

Arranging Lease finance

Saturday, January 23rd, 2010

Arranging lease finance or asset finance is still increasingly difficult to obtain. The market for prime lending has changed considerably over the last eighteen months as the high street lenders are still taking a precautionary approach to lending. Before the credit crunch and the recession most of the high street banks had an asset finance division in addition to the core commercial banking. As the banks started to suffer losses and the availability of cash to the bank themselves began to dry up these asset finance divisions started to wind down these operations.

 From an independent brokers  point of view, before the recession most of the asset finance divisions would all take broker business. There was Lombard,  Bank of Scotland  , Yorkshire Bank and Barclays to name a few. Whereas now the banks are tending to look after their own customers and wont accept broker introduced  business. Therefore if you go to your own bank and perhaps you are not strong enough to get approval there are few high street options available. In addition some high street banks wont offer hire purchase or finance lease facilities less than £50k. HSBC is a prime example. They might agree a facility for you however it will be done a straight forward commercial loan which means taht if you go back to your bank for some further funding you risk the possibility of not being able to get further funding.

 The good news is that there are still one or two finance companies that deal exclusively with the broker market that are willing to take 3rd party business. XL Business Finance has had over ten years experience of helping such businesses. Credit is still tight to come by and as such we can add value to your business because we know exactly how to structure a deal for a finance company in order to get the best possible chance of approval. Believe you me it is worth the effort because the next tier of funders are extremely expensive!

Invoice finance in the construction industry

Friday, January 22nd, 2010

Any business which operates in the construction industry or any business which invoices stage payments as part of a contract knows how difficult it is to obtain funding . Some banks maybe prepared to offer some form of overdraft however as soon as you mention contracts to most factoring and invoice discounting companies they will run a mile. The good news is that there two finance companies providing invoice finance against applications in the construction or any industry involved in stage payments. Depending on your own particular circumstances XL business finance will help you find the most appropriate invoice finance company.

However the two finance companies are very different indeed. One is a bank owned finance company and the other is an independent finance company. The independent company  is in our opinion the leading finance company in this sector and will fund  uncertified application. It also understands that actual payments against application maybe slightly different from the money received and it also understands that VAT and PAYE may have been deducted. In our experience finance via the bank maybe a bit hit or miss. Their  headline prepayment might be higher however they will have a very strict funding limit therefore as the business grows it might be difficult to obtain increased funding. As this is one of the big banks the level of service tends to be a bit hit or miss and not all the account managers understand contractual invoicing. If payments are slightly different they will put the cash to a suspense account because it doesn’t exactly match leading to disallowed credit limits and further reduction in funding.

I addition not all their account managers will pay against uncertified applications preferring to pay against certified invoices which can delay payment further!!!

Need invoice finance advice?

Thursday, January 21st, 2010

There are so many invoice finance products and companies to choose from. A quick search on the internet will reveal hundreds of finance companies all offering similar products and services. Although invoice finance is mainly about getting cash against unpaid invoices there can be a big difference between the many different companies and how they deliver their product. To make sure you get the best factoring or invoice discounting facility for your business it is advisable that you speak with a specialist independent factoring and invoice discounting broker. A good one will know the market better than any accountant and going to your bank for financial advise will be like going to your butcher for open heart surgery.

Thankfully XL Business finance has access to twenty or more factoring and invoice discounting providers. We know the market extremely well and following a brief consultation we know exactly which provider will be best suited for your own particular requirements. We will recommended two possibly three finance companies that we believe will provide the best service for your own unique set of circumstances. The good news is that this does not cost you a penny. We will get an introductory commission from the finance company. All factoring companies pay roughly the same commission so we are not tied in one any one finance company. It would be pointless introducing a business to a finance company that wont provide the best service. The most important thing is that we get you with the right finance company and that you stay with that finance company.

There are many different factors which will influence our choice of finance company. Do you need factoring or invoice discounting, geographical location is important, turnover, number of debtors, quality of debtors, debt turn, how long your business has been established and the level of profitability are all important aspects and ill have a bearing on the right finance company.

Invoice Factoring (4)

Wednesday, January 20th, 2010

Invoice factoring is still rone of the most buoyant forms of finance available in the UK today. There are still plenty of finance companies offering various forms of invoice finance. Unlike the asset financing and leasing market which seems to have dried up somewhat the choice and availability in the invoice factoring market appears to be plentiful with plenty of options and choices. A quick search on the internet search engines will reveal numerous finance companies offering invoice factoring. There are just so many to choose from. How do you know which product is best for your business and how do you know which invoice factoring company will be best suited ti delivering the right sort of service to your business. In short a good independent factoring broker will be well placed to advise you of the may products and services available. XL Business Finance provides a free factoring and invoice discounting service which ensures  the most suitable finance companies are recommended to your business.

OK it is free in that we will not charge you a fee however we do take an introductory commission from the finance company. We are confident that we will provide y0u with the names of  two possible finance companies that are most suited to financing your business. Unlike some independent invoice  factoring brokers we are not tied into any one particular finance company. We have access to over twenty or so different finance companies. Brae some factoring brokers ( particularily  the ones that have different finance company logos on their site) take an introductory commission just for passing the referral. Nothing else happens except you get bombarded with loads of calls. By using XL Business Finance we control the referral part of the process which keeps appointments and provision of information to a minimum. If you happen to read this blog before the end of Jan 2010 you will be entitled to a free Mars bar!!!!!!!!

 
 
 

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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