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Invoice Financing in a prepacked administration

Friday, December 4th, 2009

Like it or not we will probably see allot more pre packed administrations in the new year. Word from the insolvency practitioners is that the inland revenue and customs and excise are taking a tougher approach on PAYE and VAT arrears.  With the traditionally quiet Christmas period and allot of businesses already struggling ,  I think we will potentially see a few more casualties as businesses cecome  even more strapped for cash.

A prepacked administration is basically a deal whereby the business goes into administration and the following day a new company is set up to purchase the assets of the administrator.  In the process the business potentially dumps a load of debt and should be more viable moving forward. Providing factoring or invoice discounting in such a process is a very specialist area and it is advisable to chat to a good broker as to which finance comapny weill provide the best funding.

 I believe it can be argued justifiably for and against a phoenix company. On one hand why should any financial institution support a business which has gone bust and potentially has caused financial pain and grief to its creditors. On the other hand a phoenix business is potentially a leaner and meaner organisation , has a much better chance of trading profitably and will have saved a few jobs in the process.

Invoice financing in a prepacked administration is quite a specialist area and there are only a handful of financial organisations which can truly finance a prepack.  The idea is that an  invoice discounting company will take out the existing finance company prior to the pre pack. In ding so it ensures that an administrator   is on the side of the directors.  The new finance company will collect the debt from the old co and will in theory seamlessly finance the new co as well. A bank for example will appoint their own administarator and as a rule of thumb they wont provide a factoring or invoice discounting facility for the new co.

Bank switching overdraft to invoice discounting

Thursday, December 3rd, 2009

There are some very simple reasons as to why a bank would withdraw an overdraft facility. Firstly a bank will feel that they have more control over an invoice discounting or factoring facility. If a business has been in difficulties there is a trend to reduce overdrafts or even withdraw them completely. Secondly  one of the criticism that have been pointed towardsthe banks in the aftermath of the collapse in the banking system is that the banks are under capitalised. This means that  the banks were supposed to have a certain amount of cash reserves, which they didn’t. Indeed the propping up of the banking sector provided the banks with more cash however most of this cash has been used to recapitalise their balance sheets. Interestingly if a bank lends money on an overdraft they are supposed to have a greater amount of cash reserves than if they had lent the same amount of money against a factoring or invoice discounting facility.

One of  the biggest enquiries  we get is from businesses wishing to protect their working capital in the event in a reduction in overdraft. Whilst banks offer such facilities I find it very strange that a business should even contemplate an invoice finance facility with the same bank which is restricting their working capital facilities. We genuinely believe that for most financial products offered by the banks their is a far superior product offered by an independent specialist provider. Although there are so many independent factoring company, at XL Business Finance we use our expertise and experience to recommend two or maybe three funders that will best suit your requirements. As the going says one mans poison is another mans meat. It is the same with finance companies. We will take into consideration your geographic location, length of time the business has been trading, turnover , size and quality of debtor book, profitability and whether their is any previous or historic adverse credit information.

Bad debt factoring

Wednesday, December 2nd, 2009

Bad debt factoring can provide the financial freedom of releasing cash against unpaid invoices, a full credit control function and bad debt protection rolled into one!  Ninety percent of businesses go out of business because they run out of cash and not because they are not profitable. In the current economic climate it make sense to out source your credit control to leave you free to concentrate of running  your business. If your business has a turnover of circa £100,000 your business will probably be eligible for funding.

Factoring will release up to 90% of your unpaid invoices immediately therefore if you have outstanding invoices of £1.0m it may be possible to release £900k immediately. It doesn’t matter how long the business has been trading or the financial condition of the business there is normally a business to suit your particular circumstances.

A full factoring facility will start from as little as a couple of hundred pounds per month. Be beware however not every factoring company is the same. Banks for example will only chase your top few customers by phone relying on the post to chase your remaining customers.  Other factoring companies will chase every single customer by telephone and as such are they are better at collecting your invoices. They will give you the best cash flow. These finance companies can be more expensive but they can potentially add more value to your business.

Bad debt protection or on recourse factoring can also be added for a premium. Again different finance companies are better than others at providing bad debt protection. Different funders use different means to provide bad debt protection and the limits they are set are based on the credit insurance companies providing limits for you customers. In order to find out which finance company is best for your business give us a call for an independent assessment.

Single Debtor Invoice Finance

Monday, November 30th, 2009

It is now possible to obtain one off factoring against a single debtor. One finance company has entered the market whereby once you are set up with the finance company you can pick and choose which invoices you  factor.

Needless to say this facility will not work if the debtor is of a poor quality and has  a bad credit rating. Single debtor invoice finance can sit alongside other banking facilities however it wont work if  you are already factoring or invoice discounting.  A single invoice can be discounted at any point up to 90 days of it being issued. The minimum size invoice that can be discounted is £5,000 and there is  an initial  minimum charge of 5% for the first 21 days that the money  remains unpaid. Depending  on the remaining number of days the invoice remains unpaid a small amount accrues on a daily basis over and bove the initial 21 days.

This facility can be used for a one off invoice however it can also be used as as little or as often as you require. There is no on going fee just the standard charges and and when you decide to factor your invoices. The advantages of this kind of funding are obvious particularly for those businesses not wishing to be tied up for a full factoring facility. In addition if  a business finds its self using the funding more and more often then it is possible to switch to a full factoring or invoice discounting facility.

Refinancing Printing Equipment

Sunday, November 29th, 2009

XL Business Finance has been helping printing companies raise cash against unencumbered  printing equipment or equipment which is coming to the end of its finance. The ability to raise cash is providing a life line for many cash strapped businesses especially as the banks are still being very selective in whom they will advance money.  In fact any industry sector which has large and expensive items of capital equipment, such as printing, is in a fortunate position.

Cash can be raised just for about any purpose, however if your business is struggling you may expect to pay higher interest rates than if your business is trading well.  Many asset based lenders will only advance money if your business has had difficulties however the finance company will probably need to make a few checks to verify the future viability of the business.  You may also find that the loan to value may be reduced as you will  be considered a higher risk.  Business that are trading well may command a more favourable rate however don’t expect bank rates. Refinancing capital equipment is s very specialist market and as a rule of thumb high street banks and finance companies  wont refinance equipment.  More profitable  businesses might want to refinance equipment to provide a deposit for another project .  We are seeing more and more businesses wishing to refinance to reduce their exposure with the banks or where they have been refused finance from the banks because of their outstanding exposure.

It may even be possible to use cash from refinancing in conjunction with factoring or invoice discounting to provude  a new funding package.

How does confidential factoring work?

Wednesday, November 25th, 2009

Confidential factoring gives a business the same benefits of a full credit control service however the facility is set up in a way that your customers will be unaware that you are factoring your debts. Businesses which have been used to invoice discounting but  have been experiencing difficult trading conditions may find that their banks are pushing them towards a full factoring service.

Invoice discounting is perceived as a more risky funding product as the finance company do not phone your customers to chase your debts. They leave it down to you and therefore you must have good credit control systems in place. In difficult times it is more likely a struggling businesses will try and put through fictitious invoices. With a factoring facility there is less chance of a fraudulent transaction because the finance company has a better control and understanding of your debts.

Confidential factoring could just be the facility that gives you the best of both worlds. It basically works by the finance company giving you a dedicated credit controller who will chase debts in your business name. Your customers are also given a unique telephone number which is answered in your name. As and when monies are collected they are paid to a trust account. By doing this the finance company maintains a far greater control on your financial matters and therefore they are at less risk. You as a customer is happy because you maintain the confidentiality which maintains your reputation and status with your customers.

At the time of writing this blog we are  aware of only one finance company that provides a confidential factoring product.  Most businesses are unaware that such a product exists and again we can use our expertise and experience to make sure you get the best possible funding solution for your business.

Maximise your cashflow with invoice factoring

Friday, November 20th, 2009

Once upon a time invoice factoring was condsidered the lend of last resort. There was once a stigma surrounding factoring or invoice discounting however businesses wishing to maximise their cash flow realise that there are no better options.  Any sensible finance director or managing director will know that a bank overdraft is potentially a very dangerous funding option. All overdrafts are repayable on demand and we have seen many instances recently where once very profitable businesses have had their overdrafts withdrawn because of a poor set of trading results. This can have catastrophic consequences for the business and can even have worse consequences for the directors particularly if personal assets have been lodged as security.

Factoring or invoice discounting both maximise a businesses cash flow by releasing cash against invoices you have raised but as yet have not been paid for. The security is the actual invoice and the factoring or invoice discounting company are expert in making sure that the invoices are paid in a timely and orderly fashion. Therefore any exposure as a result personal guarantees is reduced to a minimum.  Guarantees are not taken by all finance companies . It just depends on the circumstances of each particular deal.  This has got to better than using a bank overdraft!!!

Why use an Invoice financing broker

Thursday, November 19th, 2009

I read on a blog recently asking what a factoring or invoice financing finance broker does for his money. It was suggested that a broker should approach the most  number of finance companies possible and get the cheapest quote for their customer. I couldn’t disagree more. Any deal that gets touted around the market and effectively becomes a beauty parade of factoring companies can do a business more harm than good. The problem is that if a finance company is aware that they are up against three or more finance companies they don’t take the deal seriously. We have seen business recently that have seen six or seven finance companies.

At XL Business Finance we will talk to our customers and very quickly we can narrow the most appropriate finance company to two or maybe three. Different invoice  finance  companies all have different ares of expertise. WE understand the factoring and invoice discounting market and we understand which finance company will be best suited for your particular requirements. Some finance companies are good in construction which has allot of contractual debt. Other finance companies are good at international trade and some are better than others at credit control.  Also  there are a number of regionalized companies that a strong presence in certain geographical areas. Why would you use  an invoice finance company based in London if your business is based in Manchester or visa versa.

So when we have narrowed it down to the two or three most appropriate finance com[pany w will set up meetings on your behalf. We than say then it comes down to personal choice and you will more often choose  the company that you feel you can develop a rapport with the members of staff. In addition this costs you nothing. Our service is totally free. We do however take a introductory commission for the finance company.  All factoring and invoice discounting companies will pay commissions so rest assured our advice will be impartial and we wont send you a bill!!!

What do I do if my bank withdraws my factoring facility

Wednesday, November 18th, 2009

Although the high street banks all say that their doors are open for business in reality this couldn’t be further from the truth. What is happening at the moment is that the banks are looking at their portfolios very closely in deed. If a business steps out of line in terms of how they operate their factoring facility , they post a bad set of results the high street banks are proving to be very in flexible. In truth before the recession they were probably taking on too many customers than they should hve done. As a result service levels dropped and now that the economy has taken a turn for the worse they cannot manage their accounts as they should.

The result is that Banks  are looking for excuses to clean up their portfolios. At XL Business Finance we are seeing more and more businesses that have been given notice to change to a new factoring company. Although this will be a worry for many businesses the good news is that are plenty of finance companies that are actively looking for the customers that the high street banks do not wish to keep on their books. XL Business Finance has the experience and knowledge of the UK factoring market to help you find a new finance company.

We will make sure that your new company will provide you with the service and flexibility that your business will require. Any  independent factoring company will provide a much better service than any high street bank. Depending on your own particular circumstances and geographical location we will ensure that you get talking to the most appropriate finance company.

Invoice discounting or factoring ?

Tuesday, November 17th, 2009

Invoice discounting are two completely different funding products. Although most finance companies will offer both facilities not all finance companies are great at doing both. Altough both funding products will release cash against unpaid invoices and potentially give you the financial freedom to grow or develop or indeed just survive in the current economic climate. Factoring is traditionally provided with full credit control  whereas invoice discounting is provided on a confidential basis.

Factoring can be provided for businesses with turnover as little as £80,000. In order to be eligible for invoice discounting turnover will need to be at least £250k. Up until a few years ago unless your business had turnover of at least £1.0m then there would be absolutely no chance of obtaining an invoice discounting facility. However when different finance companies were vying for business in the good old days before the credit crunch this minimum turnover became lower and lower.

Invoice discounting is provided on a confidential basis which means your customers are unaware that the finance company is providing funding against yourinvoices. Therefore from the funders point of view the facility is more risky than factoring as potentially the facility is more open to abuse in terms of fraud and raising fictitious invoices. Therefore a business must be profitable ,long established  and have well established credit control procedures in order to qualify for invoice discounting.

Factoring is always provided on a disclosed basis and your customers will be aware that the finance company is providing funding against your invoices. More often than not the factoring company will provide a full credit control service. Therefore the finance company has a much greater grasp and control on your finances and as such they are happy to provide funding for new start businesses , businesses which are loss making and businesses which have a relatively small turnover.

 
 
 

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 Limited are authorised and regulated by the Financial Conduct Authority FRN 718737).

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

 

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