As an credible independent invoice finance broker we were recently approached by a business having trouble obtaining funding from their high street bank. The business mainly exported goods to Europe and Africa had access to a £3.0m invoice discounting facility. As most of the African debt could be credit insured it had always been possible to obtain funding against these outstanding invoices. That was until the bank had a change of policy.

At a review meting the bank announced that they would no longer be able to finance the African invoices. A change of policy apparently. The customer during 15 years of trading had never had a bad debt into Africa and in any case most of the debtors could be credit insured. This obviously had a dramatic affect on the businesses cash flow and as such the £250k in case of need overdraft facility quickly reached its limit.

In our opinion a switch from one high street bank to another would certainly be out of the frying pan and into the fire. We therefore introduced our customer to a couple of lessor known invoice discounting ccompanies that specialise in bigger deals. They kind of start off where the high street banks start getting uncomfortable. They tend to be owned by foreign banks however unlike invoice discounting companies attached to high street banks they have their own autonomy. In addition because they are foreign owned they tend to be able to deal with world wide markets.

It is always worth getting an alternative to a high street bank and a good independent finance broker will undoubtedly be able to point you in the right direction

Trade finance provides the ability for a business to purchase wholesale goods on credit awaiting sale of the goods and therefore payment from the end user. There are several  types of trade finance and this article tries to explain the differences which should help you decide which product or type of business is best for your business.

Firstly traditional high street banks provide trade finance based on the strength and performance of the business. We call this balance sheet lending and is based purely on the profitability and track record of your business It is more often than not nothing to do with the value of the goods you are purchasing and the security that they offer.

Secondly certain factoring and invoice discounting companies provide trade finance facilities on the back of an invoice finance facility however the goods in this instance must be pre sold. For example if you were inmporting Plasma TVs from China and you had an order from Costco for example it might be possible to obtain a complete funding solution. The factoring company will provide you with an import facility to purchase the TVs. On delivery of the TVs to cost and on raising an invoice a factoring facility will provide a further funding facility until Costco pay within the terms of the invoice. As factoring will only fund 80% of the end invoice the mark up on the imported goods must be at least 20% otherwise the invoice finance facility will not repay the trade facility.

In  our opinion yes. The problem with banks is that they blow hot and cold. They might do some fantastic invoice discounting deals in the good times however as soon as it starts raining they more often than not want their umbrellas back. A customer requiring a large facility of say two or three million may find themselves with restricted credit if their is any change in their performance.

We have seen this recently with very strong businesses that have seen profits drop but for positive reasons such as investment in new equipment and premises. The fact is the banks don’t always like to see a drop in performance irrespective of the reasons. Comined with restructuring and merging with the high street big banks you will find a very erratic approach to their lending criteria and possible clipping of facilities.

The good news is that there are alternatives to the high street banks. During the good old days, the recession and now the slow recovery these alternatives have always taken a consistent approach to their lending criteria. These are specialist invoice discounting companies , whilst funded by big lessor known merchant banks have their own autonomy and there is enough variety to cove most situations. A £3.0m facility is a drop in the ocean for a couple of these funders. At £3.0m plus even some of the high street banks might start getting a bit jittery. It appears that the banks want to collect as much money in at the moment rather than lend it out.

We think so but then again why wouldn’t we ! As an independent business finance specialist we are firm believers that borrowings should be spread across as many financial institutions as possible. We also believe that any form of invoice discounting is better than a bank overdraft.

The problem with a  bank overdraft means that you are at the beck and call of the bank. An overdraft is repayable on demand and at the first sign of trouble it can be withdrawn at a moments notice. No one ever thinks this will happen but believe you me, we have seen it happen and the consequences are not pretty. Another problem with bank overdrafts is that the amount you can borrow is determined by the strength of your balance sheet or the level of  security available. Bank overdrafts of any significant amount are normally secured against bricks and mortar.

Invoice discounting couldn’t be different. A facility is secured against your unpaid invoices and within reason as your business expands so does the size of the facility available. Providing you are looking for standard trading terms borrowings of 80% of debtor book are the norm without the need to provide additional security.

Directors warranties are the normal comfort obtained from the invoice discounting company which provides an indemnity against any fraudulent activity. Fair enough one thinks

XL Business Finance has been helping the SME market for over 10 years sourcing the right kind of funding for a business’s particular needs. Give us a call today to see how we can help you

In this challenging economic climate the high streets banks appetite to write international invoice discounting deals has declined somewhat. In fact there are very few invoice discounting providers that will provide a true international invoice finance facility. The good news is that there are still a number of lesser known funders willing to assist in this very difficult market.

As an independent finance company we have been advising businesses for over 10 years as to which finance company will suit their particular requirements. There are many different factors which will need to be taken into consideration when making a recommendation. For example, a particular invoice discounting company maybe very comfortable in the SME market whereas once a business gets into the multi million turnover bracket there are a few foreign banks that may be able to provide a funding arrangement. It is important that you contact someone like ourselves because a finance company wishing  to write business only a few months ago maybe being restricted funds today and as such their terms and conditions may not be as favourable as rather than say no they price themselves out of the deal.

As we know no finance institution admits being skint and as such they go through the motions, promise the earth and ultimately deliver nothing. At XL Business Finance we no exactly which finance company is strong in our particular sector and as such we add vale by making sure you speak to the correct finance company sooner rather than later!!

On the face of it one invoice discounting is the same as another invoice discounting company. For the majority of businesses this probably the case. However as mentioned on previous blogs all finance companies have their own sweet spots and this includes the total exposure they will go to or one company or in other words the total amount of funds out. If you find that your invoice discounting or factoring company is restricting your overall credit limit then t might be time to seek an alternative view point. As one of the UK’s  leading invoice finance brokers we believe we are well placed and qualified to help you with such matters.

There are usually a number of different reasons why a finance company will restrict your overall limit. It may be because your business has had a dip in performance and they wish to monitor your activities more closely. The banks in particular will get nervous in this situation and as such try and reduce their overall exposure. At a time when your business needs cash most this can be massively inconvenient and can possibly make the trading situation worse.

It may be that you have beached your covenants. The most common being pre invoicing or misappropriating cash. More often and not these more serious breaches result in being given a red card. When faced with a potential new funder it is always best policy to come clean and explain the reasoning behind your actions. All factoring and invoice discounting companies will take a reference and any misdemeanours will always be found out.

Or it could be that the finance company is  uncomfortable with  the overall  exposure not because there is anything wrong with your business but because the funding limit is getting too big for that particular business. In this situation an amicable parting ways is usually the best option. Even some of the high street banks get nervous with some of their larger clients and as such some professional advice and help will enable you to find the most appropriate funding partner.

And the winner is! It depends!

Both an invoice discounting and factoring facility will release up to 85% of your unpaid invoices on a revolving credit basis. In theory both facilities will grow as your turnover increases providing you with valuable cash and working capital. In our opinion both are far better than a bank overdraft which is not as flexible and will be capped depending on how profitable or the level of security available.

Both factoring and invoice discounting charge an interest rate for the amount of money that you borrow which is comparable to a bank overdraft. If you don’t use the facility than there will be no interest payment. The rate of interest may vary from between one and a half percent over base to as much as three percent over bank base rate. Some finance companies charge their interest rate to Libor which at the moment doesn’t make much difference because both are about the same. Beware some finance companies charge a minimum base rate so you need to double check the small print.

The main difference is that factoring provides credit control whereas invoice discounting is provided in a confidential manner and provides a cash flow facility only. As such the service fee with a factoring company  is usually higher than with invoice discounting. With factoring they will call your customers and ensure that payments are received within the ninety days permitted. Although the costs of factoring his higher for smaller businesses compared with the cost of outsourcing credit control it can be a very cost effective form of finance.

However if you are a new start business, have a small net worth or are having trading difficulties you are unlikely to be offered invoice discounting. This is because invoice discounting can be  susceptible to fraud. As invoice discounting does not enable the provider to do any checks there have and will be cases of fresh air invoicing.

As we have probably mentioned more businesses go bust coming out of a recession than actually in it ( so I have been told). This kind of makes sense. The banks are still being tight with the cash and as the recovery takes place you need more working capital. Therefore it is imperative that you get the right kind of working capital facilities in place to meet cash flow needs. 

Get too far into the banks with an overdraft and you might find  yourself in difficulty in switching to a more flexible working capital facility such as invoice discounting. Therefore if you think at any point in the future you may need some help with additional working capital you should seriously look at an invoice finance facility sooner rather than later. Invoice discounting or even factoring will release up to 85% of your unpaid invoices and will grow as your business expands. So long as your business has a good mix of customers you should be able to get funding to the maximum amount available.

Which invoice discounting company is best for your needs depends on the length of time your business has been trading, the level of profitability and the systems and procedures you have in place to monitor and chase your customers. It might be that a bank based invoice discounting company will provide you with the best deal in terms of costing but as we know the banks are not always the most flexible. XL Business Finance has over 10 years experience in helping businesses choose the right funding partner and we guarantee that we will add value to the proceedings.

Invoice discounting can simply be described as the provision of finance against unpaid invoices. The finance provider will take security over the book debts of the business by registering a debenture over the business. Traditionally the invoice discounting company will release between 75-85% of unpaid invoices of up to a 90 day period. Invoice discounting is usually confidential in that your customers are unaware that you are discounting your invoices. This is different from factoring whereby your customers are aware that you are raising cash against your invoices.

The criteria for obtaining an invoice discounting facility is higher than a  factoring facility and the decision of the invoice discounting facility will be influenced by

1.  the business should be able to demonstrate that they are trading profitably and that there is a reasonable net worth. The last set of audited accounts and most recent management accounts will be required to evidence a profitable well run business.

2. the lender will pay particular attention to the quality and spread of your customers. Ideally no one customer should account for more than 20% of turnover. There are a number of invoice discounting companies providing single debtor invoice discounting however it depends on the risk of that particular customer and whether credit insurance is available.

3. you must be able to evidence that a good credit control system is in place and that the turnround of issuing an invoice to receiving  payment is done in a timely manner.

4. In addition a good sales ledger must be in place, ideally be computerised and adequately kept up to date.

As we have previously mentioned not all invoice discounting companies are the same. Every lender has a sweet spot. A good invoice discounting broker will be able to recognise which finance company will best suit your particular requirements. The introduction will be based on the length of time the business has been trading profitability, spread of and quality of the debtor book and geographic location.

Any search of google will reveal hundreds of choices of invoice financing companies. There are three main types of companies. Independent brokers, bank owned invoice finance companies and independent factoring and invoice discounting companies. Independent brokers are a good place to start. Not to be confused with an independent factoring or invoice discounting company that provide the funding and service themselves but are independent in that they not bank owned.

A good independent broker will know the factoring and invoice discounting market inside out. Based on your businesses particular circumstances such as length of time trading, location , profitability, turnover and quality of debtor book he or she will be able to narrow the choice of factoring companies down to about two or three of the most suitable funders. Different lenders have different lending criteria and most have different sweet spots. What is one mans poison is another mans whatsit. We would always recommend having a meeting with a max of two to three providers so you can a feel for personalities and decide which finance company that you may be able to work more closely with.

We would also be wary of a site that links in to a number of different funders to provide the cheapest possible quotation. There are so many factors which need to be taken into consideration when choosing your funding partner. Although cost is certainly important it shouldn’t be the be all and end all as there are so many other consideration which should be considered.

XL Business Finance is one of the leading indpendent brokers in this firld and without a doubt will certainly be able to add value to the proceedings.