Asset finance leasing - XL Business finance

Invoice Finance in the construction industry

February 18th, 2010

As far as we are aware there are only two finance companies providing invoice finance to the construction industry. This is because construction tends to be very contractual and the majority of invoice discounting and factoring companies don’t understand it.

One of the providers is a high street bank and depending on the knowledge of your point of contact  we have had mixed reports as to their ability to provide a decent service. The other provider is one of the larger independents and their level of service is more consistent.

The problem with contractual invoicing is that that amount and value of work undertaken at a particular point can be very subjective. Most invoice finance companies don’t want to get involved with disputes over work undertaken in relation to larger projects.  As a rule the high street bank will only advance against certification whereas the independent will provide funding on application of the invoice. Due to the nature of the debt prepayments to be at a lower level than normal factoring or invoice discounting. Traditionally invoice finance will release up to 85% of your unpaid invoices however with these contractual deals it may be allot lower.

If your business is quite large than as a rule of thumb we would recommend the independent because they appear to have the consistency in understanding ow the invoice is structured. They also have their QS working for them to verify  the invoices if need be. The bank may provide a higher headline prepayment however in reality they are not as good as collating stage payments and as such they are more likely to disallow certain invoices and payments.

On the other hand if your business is relatively small the bank provider takes a view on their overall portfolio and as such if they fell they have a good mix of customers they may not look too closely as to what and ow you are invoicing and such you may end with more cash.

Changing Invoice Factoring company

February 17th, 2010

There are many reasons as to why a business would want to change their invoice factoring company. The main reason is through a lack of flexibility when it comes to credit limits against individual customers. It may also be that the factoring company that you are using restricts the overall funding limit. It may also be that they are no good at collecting your debt. Whatever your gripe it is not unusual for a business to want to change a factoring company and hopefully this blog will provide some information as to how to do it.

First things first, most finance companies will sign up a business on factoring for at least a 12 month contract and in some instances we have seen two or even three year contracts. In addition there will be a 3 month notice period. However some of the banks offer one month rolling contracts to customers unsure if they require the service or not. Anyone on a longer contract and feels that the relationship has totally broken down between themselves and the funder may be allowed to leave. This is unusual as most factoring companies don’t allow customers to leave that easily. It may also be possible to do a deal with the exiting factoring ompany and in addition the new factoring company may contribute to the costs of the move. The cost of moving needs to be compared with the amount of additional cash a move could release so you can decide whether a move is worth it  or not.

As we have mentioned with previous blogs not all factoring companies can be all things to all men. Bank owned factoring companies operate completely differently to independently owned factoring companies. We tend to find that with factoring that requires that the funder provides credit control the independents are superior to collecting the debt.

Invoice Discounting explained

February 16th, 2010

Invoice discounting is purely a means to be obtaining cash against your unpaid invoices. The facility can be provided on a confidential or disclosed basis.  Normally the facility will pay  up to 85% of any invoices your business raises. Credit is provided for up to 90 days however under certain circumstances there are a number of invoice discounting providers that will provide up to 120 days. Unlike a bank overdraft the level of funding is not restricted by the profitability length of time and credit worthiness of your business. The facility will grow with your business and as such it provides the ideal working capital facility.

Invoice discounting is different from factoring because all factoring facilities are provided on a disclosed basis and factoring also offers credit control. Invoice discounting is simply a meansof obtaining cash against your outstanding invoices however not all businesses will be eligible for a undisclosed facility. From the finance company’s point of view invoice discounting is a far more riskier facility. This is because the finance company has little control  over your customers. It is a more trusting facility in that the customer will raise an invoice and on a weekly, daily or monthly basis copies of the invoices will be provided to the finance company and the finance company make available 85% of the invoices available as immediate cash. The finance company doesn’t check with your customers that you have raised the invoice. The remaining 15% of the invoice is paid to the customer as and when your customers settle your invoices. Obviously the finance company will deduct an amount for interest owing and a small amount for the service fee. The service fee is usually a percentage of the overall turnover.

Factoring Finance explained

February 15th, 2010

Factoring Finance is the means of obtaining cash against outstanding or unpaid invoices. Most factoring and invoice discounting companies  will release up to 85% of unpaid invoices. On payment of the invoice the finance company will pay you the remaining 15% minus a small service fee and any interest due.  The funding is usually provided for a maximum of 90 days however in some circumstances there are one or two finance companies that will provide funding up to 120 days. The factoring company will take a fixed and floating charge over your book debt and when you raise an invoice to your customer you request that the proceeds are paid direct to the factoring company and you provide their bank details. Factoring will also provide credit control whereby the finance company will chase your invoices on your behalf.

Once upon a time there was a stigma surrounding factoring and invoice discounting however it is fast becoming the preferred means to provide working capital and is recommended by many professional advisors as an alternative to a bank overdraft. The problem with a bank overdraft is that the level of the overdraft facility can be restricted by the length of time your business has been trading, its profitability and the amount of security available. Factoring will grow with your business and will provide you with a lifetime of working capital.

Beware not all invoice factoring companies are the same. Factoring is very much about adding value to your business. Not only does it provide the necessary cash flow but the credit control side is just as important. There is no point going with a really cheap provider if they are useless at collecting your cash. Thew banks only tend to phone the top one or two companies whereas the independents tend to specialise in this product and as such do a proper job when it comes to credit control.

Business Finance without using a bank

February 14th, 2010

It goes without saying that the high street banks have a captive audience when it comes to providing business finance. Most businesses will turn to their business banker in times of need. Whether it is a bank overdraft commercial mortgage , equipment finance or invoice finance your friendly manager will be only too please to help. Remember though when it comes to the different forms of business finance for every high street bank offering finance their is an alternative independent company offering funding.

Once upon a time it was possible to get a package deal with the bank. They might do one product as a loss leader and as such the overall funding was priced very competitively. The problem of having all ones eggs in one basket has become evident over the last year or so. Banks have been found to wanting at times and it is very true that they are great at giving their customers umbrellas but as soon as it starts raining they want them back.

In our opinion the independent business finance companies provide a product that is very competitively priced however the levels of service and flexibility can far exceed those of the banks. This is very true when it comes to factoring and invoice discounting. Whilst for certain types of business there are certain banks that we would recommend as a whole independent provide a far more approachable and flexible service.

XL Business Finance has been helping its clients for over 10 years to obtain the most appropriate invoice factoring and invoice financing facilities. The cheapest is not always the best and a by undertaking a brief review of your business we can provide two or three funders ( probably ones you may not have heard of before) that will knock the socks of the banks in providing the right level of service and flexible funding that your business requires.

How debt factoring works

February 11th, 2010

Debt factoring provides an alternative to a bank overdraft for cash flow purposes. Up to 85 % of outstanding debtors are releases as you raise an invoice. An overdraft will be restricted in size depending on the amount of aavailable security aavailable. A factoring facility will grow with the business and will provide a available source of working capital as a business grows. In addition a certain amount of credit control is provided in the process. A minimum charge for running a factoring facility is circa £2-300 per month. For a small business this may seem allot but compared with the cost of employing a credit controller we think it provides pretty good value for money. The minimum turnover to make it cost effective would be in the region of £80k per annum.

There are two charges for a debt factoring charge. First the interest rate for borrowing money is comparable to a bank overdraft. You will be charged at 2% over base or libor depending on the finance company. Beware some finance companies charge a minimum base rate and as such it is prudent to check the small print to ensure you are comparing apples with apples. The second charge is the service fee for providing credit control and debt collection. Although a bank based factoring company may offer a very cheap service charge they do not always provide the best service. Certain banks will only chase by telephone your top 3 customers leaving the rest to be chased by letter. Therefore debt turn is not always the best. A specialist factoring company will telephone all your customers and as a result get the money in through the door quicker. This aspect of the factoring service is very much about adding value to your business and as such the cheapest is not always the best.

Obtaining Finance for equipment

February 11th, 2010

iceXL Business Finance has over 10 years of helping businesses obtaining finance for equipment by way of finance lease or hire purchase facilities. Never has it been more difficult to obtain funding. Most of the high street finance companies have totally withdrawn from  the asset finance and leasing  sector. The likes of Bank of Scotland and  Barclays used to have very active asset finance divisions which they have completely closed down. It didn’t matter if you didn’t bank with either of these two companies they would do lease and hire purchase deals for just about anyone. Nowadays they wont even do deals for their own customers. If hey do they tend to do it on loan facilities and obtaining funding is very difficult as you will be dealing with the usually slow banking process.

Thankfully there are one or two finance companies still lending money via the broker market however they have become more choosy as to what deals they will do. It is simple supply and demand. They don’t have as much cash as they used to do and they have far more delays to do then they used to have. Combined with an increasing bad debt provision it becomes understandable as to why it is getting harder to obtain credit.

It is therefore imperative that any application for finance is presented to the finance company in the best possible manner. WE don’t necessarily require projections business plans and cash flow forecasts. However we do need an understanding as to the rational for the purchase and we also need to evidence serviceability. So long as we have some recent management accounts and 3 months bank statements we will be very quickly be able to provide an indication of terms for  any available finance. It is far better to get all this information up front rather than presenting it to the finance company in dribs and drabs. We can help a business get the right information together.

Invoice factoring and overpayments

February 9th, 2010

We all know that an invoice factoring can provide immediate cash of  up to 85% of unpaid invoices. This provides valuable cash and working capital when a bank overdraft might not provide enough of a working capital facility. However there are instances when this might not be enough. Depednding on  the seasonality of your business and timings of payments to key suppliers and Vat returns etc there might be occasions when an overpayment is required. Therefore it is imperative that when choosing a factoring or invoice discounting facility that the flexibility and approachability of the finance company must be taken into consideration. Not all finance companies are the same and a proper invoice factoring company will be able to help you in times of need.

XL Business Finance has helped many business find the most appropriate and flexible finance company. As a rule the larger independents tend to be a little more flexible and as such they are more amenable to overpayments. They would normally only advance up to 100% of the outstanding debtor book unless there is additional security available to provide the necessary cover. Try and approach yoyr local bank manager to organise an overpayment. It just wont happen. With a independent provider you are never more than one or two phone calls away from a decision maker and as such they are far more flexible.

When we say independent finance company we mean one that isn’t bank owned or doesn’t borrow money from the banks to lend money. There are plenty of so called independent invoice factoring companies that borrow money off the banks and as a result tend to have the same sort of restrictions that the banks have. A rue independent is one that does not borrow any money off the banks and it is these that tend to be more flexible.

Invoice financing and trade facilities

February 8th, 2010

Invoice financing can provide  much needed working capital however when combined with an international trade finance facility the two  facilities dove tail to provide the complete funding solution. Any businesses wishing to import goods from a foreign country can do so without having to use any of their own capital provided that you have guaranteed orders in the UK. On trhe back of these orders the finance company will provide the cash to import the goods. As soon as the goods are delivered to your customers premises, you will raise an invoice. Either the customer pays immediately and the trade facility is repaid in full or you provide your customer with credit and the same finance company provides an invoice discounting or factoring facility against your invoices and the proceeds are used to pay the trade facility.

This process would seem pretty simple however not all financial institutions provide the two services together. If you went to the bank asking fro a trade facility the amount of credit you are provided with will depend on the length of time your business has been trading, how profitable it is, and the level of available security. Providing a one stop shop is difficult in that it is a very specialist market however once you know which funders are in the market you might be pleasantly surprised as to the level of funding available.

XL business Finance has been helping many businesses trading internationally with cash flow solutions. We know depending on your location . length of time in business and the level of profitability which invoice financing company will be best suited for your particular business. The good news is that you don’t necessarily have to have a stack of security available. Thankfully there are a number of independent finance companies that providing the exit route is watertight they will take a commercial view.

Invoice Finance and stocking Finance

February 7th, 2010

Invoice Finance can potentially provide so much more. As we know a factoring and invoice discounting facility will release up to 85% of a businesses unpaid invoices. In the very difficult period of obtaining cash flow from the banks it is important that a business obtains as much benefit from their invoice finance facility as possible. Obtaining stocking finance on the back of an invoice finance facility might provide your business with the additional working capital required to make the difference between success and failure. Not all stocking facilities are the same and XL Business finance has over 10 years experience in helping businesses find the right funding solutions.

At the moment there are no finance companies providing stand alone stocking facilities. Any stock finance is provided on the back of a factoring or invoice discounting facility. However beware there are only one or two funders that provide a true revolving stocking facility. Most invoice discounting companies suggest they provide  finance against stock however what they actually do is provide a further advance up to 100% of the debtor book using the stock as the additional security. In addition they claw back the overpayment over a 12 month period for example. A true revolving stocking facility will provide a percentage of the total stock in addition to the agreed prepayment against the debtor book.

 
 
 

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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