The ability to release 90% of unpaid invoices before they are due can provide a massive cash flow benefit to any business.  However for many businesses  it is important to obtain a  degree of confidentiality to maintain a good client rapport. Traditionally confidential invoice discounting would have been the chosen product however n the credit crunch and recession it is more difficult to obtain a confidential facility. Could confidential factoring be the answer to your problems?

Confidential invoice discounting  is traditionally for long established and profitable businesses with turnover over £0.5m.  A business can release up to 90% of their unpaid invoices simply by sending copies of their invoices to the finance company. The finance company is in effect trusting the business not to supply and fake invoices hence the business has to be trading well and be profitable.

Whilst traditional factoring can release cash your customers will be aware of the factoring company involvement as you will request on your invoice payment be made direct to the factoring company. This can be unacceptable for some businesses who like to keep their funding affairs private.

Confidential factoring is in effect a half way house. A trust account is set up in the name of the business where customers payments are sent to. In addition the factoring company will have a dedicated phone line in the customers name and all credit control will be made in the customers name. In this way the factoring company maintain control of the account and the customer is happy as confidentiality is maintained. This facility is particular useful for businesses which have been used to confidential invoice discounting but due to a change in circumstances no longer qualify.

In the current economic climate we are faced with the unfortunate fact  that many struggling businesses will be forced to go through a pre planned administration or pre pack. In doing so a business may have a fresh start and typically the victims will be the crown , financial institutions and unfortunately some creditors and members of staff. It is a harsh reality of the recession but in our opinion it is better that a business be given a second chance to continue trading rather than the business folding completely. However any business going through a prepackaged administration will have fewer funding options.

Unfortunately most of the high street banks will not finance a prepack or phoenix company. Therefore many businesses are left wondering what finance options are available. There are only a handful of commercial mortgage options available and good luck with any business trying novate hire purchase or finance lease agreements into a new co.  XL Business Finance has the expertise and experience in helping phoenix businesses with their asset finance agreements. On a more positive note there is a plethora of factoring companies, usually independent from the high street  banks that are willing and able to fund your debtor book.

However the options in terms of products will be fewer and no factoring company will offer a confidential invoice discounting facilities. The options will be  factoring facility with full credit control, a factoring whereby the customer can do the credit control themselves and in certain circumstances it may be possible to obtain a confidential factoring  facility. To find out which product will be best suit your particular requirements and which factoring company will delver the best service XL Business Finance has over 10 years of advising and helping many satisfied customers.

The ability to release cash against unpaid invoices undoubtedly can have a positive impact on the cash flow of a business. The extra cash can provide the freedom to grow the business and the added value of having someone chase your debts will also provide a massive bonus and a boost to the business. Typically a factoring facility can release up to 90% of your unpaid invoices with the added benefit of credit control.  However if things are not working out how easy or difficult is it to switch factoring companies?

There are so many factoring companies to choose from and not all factoring companies are the same. Some are bank owned, some are independent PLCs and some are small private companies. Which is the best factoring company for you will depend on the turnover, the length of time you have been trading and the profitability for  your business. In addition factoring is very much a value added service. Factoring can provide credit control on the back of the  funding your invoices. As such there are two elements to the charging. An interest rate at around 1-3 over bank base rate is applied to the money you borrow and there is a service fee for the credit control. For the smaller business this starts at a couple of hundrded pounds per month. The cost of using a factoring company for credit control can be very cost effective compared with the cost of employing a full time credit controller.

However as factoring is not as simple as just borrowing money there are occasions when the relationship between the factoring company and business breaks down to the point that the customer has no option but to  seek a new factor. The most difficult part of changing factoring companies is that the charges can be onerous especially if a new contract has been signed. Sometimes with some careful negotiation these amounts can be reduced however it is best timing any move to coincide with the expiry of any contract. It is not unusual for factoring companies to have a 3 months notice period so this must be taken into consideration as well. In addition if you factor with the bank and they have a overdraft as well as a factoring facility the overdraft maybe withdrawn if they are loosing the factoring. A good independent factoring broker may be able to add some value in any transfer as many of us know many of he funders very well and sometimes we can have some influence over the exiting factoring company.

There are literally dozens of factoring companies, some bank owned and many others are independent. A well run factoring facility can provide a cash lifeline by providing funding against unpaid invoices. The ability to unlock this cash provides the financial freedom that a business requires to develop and grow. However in these difficult times the choosing the wrong factoring company can be the difference between a business succeeding or failing. It is even more important for the small business because the wrong choice of factoring company can potentially lead to devastating consequences. So how do you select the best factoring company?

Most businesses with turnover of less than £500,000 will be required to factor their debts. Factoring not only provides cash against unpaid invoices it also provides a credit control system for the business. There are two elements to the charge. The cost of borrowing the money which is usually charged at a percentage over bank base rate or libor and a service fee which is usually a percentage of turnover. Depending on the complexity of the business ,the number of invoices and turnover the service fee can start a a couple of hundred pounds a month or from 0.5% -2% of the total turnover.

Not all factoring companies are the same. Factoring is very much a service driven product and some providers are better than others.  Other than providing cash sometimes we forget that if the credit control of the factoring company is not up to scratch than there is no point  choosing the cheapest provider if they cannot collect the cash. At XL Business Finance we know which factoring companies will telephone all your customers ensuring the cash is collected on time. Many of the bank operated factoring companies will only telephone the top few debtors leaving the rest to be chased by post. Also the number of customers will also impact on service. The geographical location must also be taken into consideration as certain factoring companies are better in certain parts of the country. A good independent factoring broker will be able to guide you through the factoring maize.

XL Business Finance is one of the UK’s leading independent factoring company. We save our clients time and money choosing the right finance company. The good news is as well is that our service is totally free.

There are literally dozens of UK based factoring and invoice discounting companies so how can you be sure the finance company you choose is the best one to suit your particular needs? During our initial free consultation with our customers we can quickly determine which two or three finance companies will be best suited to our customers. WE use our 10 years experience within the industry and base our decision on the age of a business, its turnover, how profitable the business is or is not, and whether there are any other unique requirements within the facility required. For example there are only one or two finance companies that will fund contractual debt and construction companies. Whether there is any international trade or importing and exporting will also have an influence on the decision.

Therefore we use our experience to make one or two recommendations and we believe that this saves our customers considerable time and expense. Although we don’t charge our clients we will get an introductory commission from the finance company.  All factoring companies pay commission so we are not loyal to any one lender. We have to add value to our service and make the best possible recommendations otherwise we don’t get paid!

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.

A relatively new product to the market Confidential Factoring provides the full benefits of a normalfactoring service together with confidentiality that so many businesses would prefer. There are only a few factoring companies providing this service and as such the facility represents only a small fraction of the whole cashflow market.

A facility will provide full credit control and debt collection. The finance company provide their client with their own unique telephone number and a dedicated credit controller. All telephone calls letters and communication are made in the name of the client so your customers are unaware that a ull factoring facility is being used. Any monies collected are paid into an account in the name of the customer but operated by the particular funder. This provides the cash control that the factoring companies require which under a standard invoice discounting facility they would not obtain.

This facility is suitable for businesses that would prefer invoice discounting which is confidential but unfortunately do not meet the criteria for an invoice discounting facility. Invoice discounting is deemed to be more risky than factoring because the finance companies do not have the same degree of control. In the current economic climate factoring and invoice discounting companies are less likely to grant invoice discounting facilities, especially if the business has been trading less than 3 years or is financially week.

This is one of the least known about finance facilities in the market place. It is a very simple form of funding but is often overlooked when businesses consider their financing options. Although it is a form of cashflow funding it is completely different from factoring and invoice discounting which provides cash against unpaid invoices for periods of up to 90 days.

Contract Finance provides a lump of cash up front against the future value of guaranteed contracts. For example a business may have a guaranteed contract over a five year period generating £10k of income per month.  The total value of the contract is therefore worth £500k

It is possible to provide funding of up to £500k less a charge for borrowing the money over a five year period. The finance company will  take a legal charge over the contract and other legal documentation to make their security water tight. There are few funders in the market but still enough to provide funding against a large number of scenarios.

A minimum deal size is £50k and potentially no upper limit. The strongerthe covenant of contract the greater the percentage advance. This facility works very well where the contract is with a government body such as an NHS Trust. Each particular deal will be assessed on it own merits and if a business has any guaranteed future value it is always worth a chat.

One of the most common  enquiries we are receiving via the internet is from customers that are having difficulty with their particular factoring or invoice discounting company reducing credit limits against their customers.

The headline prepayments might be 80% of unpaid invoices however the actual amount being funded might be as low as 50%. In our opinion this is one of the biggest problems in the current economic crisis. Most funders will be in the same boat however it might be worth shopping around as funding limits might be being reduced for other reasons.

There are plenty of finance companies running out of cash at the moment, others have over exposed themselves to a certain sector or have lent too much on invoice discounting and are trying to balance their portfolio.  The independent finance companies use external credit reference agencies to determine credit limits whereas the banks and high street lenders more often than not use their internal resources to determine credit limits.

Who will give the highest credit limits will depend on what experiences the finance companies and credit insurance companies  have with particular sectors, existing customers and market information. Normally the independents provide the highest limits however it is not unknown for the banks to provide higher limits. When choosing a factoring or invoice discounting company this is one of the factors which must be taken into consideration.

As a leading independent factoring and invoice discounting broker it is important we match the most appropriate factoring company with our potential clients. XL Business Finance use over twenty different finance companies that all have a different criteria in terms of the clients they are looking for. The main paramiters which we work to are.

Is factoring or invoice discounting required? As a rule of thumb some of the independents are better at factoring than the bank owned factoring companies. This is because factoring for the independents is their main core activity. They will go the extra mile in terms of chasing your customers. An independent specialising in factoring is more likely to chase and phone all your customers. Although cost must be important factoring is more of a value added service and as such you tend to get what you pay for.

Turnover. This very important because different factoring companies are comfortable in a certain turnover range. Some factoring companies specialise in the small business sector to provide that extra personal touch. XL Business Finance can advise which factoring company will best suit your particular needs

Location. Different factoring companies have a strong presence in different geographical locations. XL Business Finance can advise as to which factoring companies are best in your particular area.

Market Sector. Different factoring companies can have a particular niche in certain market segments. Certain factoring companies are very good at haulage or printing for example. It all depends on their particular experiences of the different market sectors.

Finally Product. Some factoring companies can provide stocking finance in addition to the debtor finance, others are good at international trade. Some are good are good at contractual debt.

XL Business Finance can save you the time and expense of locating the most appropriate funder