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Posts Tagged ‘Factoring’

Bank Borrowing Too Expensive?

Monday, July 27th, 2009

So the Chancellor of the Exchequer has finally realised that the banks are charging more than they were 18 months ago. We have known for sometime it has become increasingly more difficult to obtain hire purchase and finance lease facilities as the banks and high street finance companies continue to restrict credit.

In my opinion they are caught between a rock and a hard stone. The economy is in a mess due to their irresponsible approach to lending in the boom times. Now that we are in a recession and they have been bailed out they are supposed to be helping the small businesses but they have used the money from the government to improve their balance sheet.

For every loan or overdraft they advance they are supposed to have a percentage of the advance in cash reserves. How much they put into reserves depends on the finance product in question. For example if an overdraft facility is granted a much higher percentage of the advance must be kept in reserve than a factoring or invoice discounting facility for example. That is why your bank manager will always try and push a business into a factoring or invoice discounting rather than an overdraft facility.

In addition to providing better security factoring or invoice discounting is less onerous on the banks reserve requirements and improves their overall balance sheet. The high street banks will tell you they are open for business but privately they are cherry picking their deals. Although the banks are charging a higher margin the overall costs in the majority of cases has significantly been reduced virtue of the fact the bank base rate is so low.

It must also be remembered that finance is a risk reward businesses and funders have the right to charge their customers appropriately. Although the banks have finally woken up to this fact if you are a business and you have been offered a facility from a high street bank it will probably be by far the cheapest finance on offer.

Matching Clients With Factors

Thursday, July 23rd, 2009

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

Independent or Bank Owned Factoring Company

Monday, July 20th, 2009

There are many factors which need to be taken into consideration when choosing a new factoring company. The most important of which is whether an independent factoring company or a bank owned factoring company is the preffered route. An independent company which is non bank owned traditionally tend to be more flexible than banks.  Independents don’t have the same financial constraints as the banks as they are able to make their own rules and regulations. In addition many of the sales guys working for independents are very senior and experienced and are able to agree deals instantly up to a certain size. This potential quick turnaround in the decision making process can also is a factor in choosing a funder.

As a rule of thumb we would recommend an independent for a full factoring facility.  It is more likely that an independent will chase your customers more frequently. Some banks will only phone the top few customers. Certain independents will chase the entire customer base. Obviously this will have an implication on cost and is the reason why it may appear cheaper to use factoring with a bank. However it must be remembered that factoring is a value added service and the cheapest is not always the best.

However if you are looking for a straight forward invoice discounting it is sometimes difficult to argue that the independents are better than the banks. At this point other factors also need to be taken into consideration. The length of time the business has been trading, is it a new start , is there any contractual  element to the debt, is any international trade finance required, is their additional stocking finance required etc etc

 

Overdraft withdrawn when switching to factoring/invoice discounting

Monday, July 20th, 2009

If you are considering switching to a factoring or invoice discounting facility it is worth considering the implications this may have on any available overdraft facility.  It is more likely than not that a bank will have taken an all assets debenture against the company. This means that their security is the debtor book of the company. Therefore when considering an alternative cash flow product there must be enough flexibility in the headroom of the factoring or invoice discounting facility to fully repay the overdraft and provide additional working capital. Any bank informed of a customers intantion to use a factoring facility in my experience will require the overdraft repaying in full. Remember an overdraft facility is repayable on demand.

I have also seen customers being caught out wanting  to switch a factoring facility away from a bank to another independent factoring company. They have forgotten or not realised the bank has an all assets debenture registered against the business to secure a small overdraft. Before the customer can switch the overdraft will need to be paid off but it can often be the  customer doesn’t have the headroom to repay the overdraft. Sometimes it may be possible to get a small over payment from the new factoring company or it may even be possible to refinance existing equipment to repay the overdraft and provide additional working capital.

Invoice Finance

Wednesday, July 15th, 2009

Over the years invoice financing has grown in popularity. Once upon a time it was deemed the finance product of last resort however nowadays it is one of the first facilities that professional and business advisors recommended to their clients. The main reason why businesses go bust is that they run out of cash. A bank overdraft may not give the appropriate amount of cashflow to operate a business at the correct level.

More and more businesses are turning to invoice finance as a means to boost their financial flexibilty and use either factoring or invoice discounting to generate much needed cashflow.

Despite the goverment in their attemts to boost liquidity in the banking market traditional forms of bank based funding remains tight and difficult to obtain. Even the much publicised governement backed EFG funding scheme is having little affect. The good news is that many business owners are discovering that many alternative credible forms of finance are available other than the banks loans and overdrafts.

Mainly due to a lack of understanding of invoice financing these alternative forms of finance have been off the radar for many businsses. There is sometimes a perception in the market that factoring or invoice discounting can be costly and out of reach for many businesses. Factoring can be obtained for a business with turnover as low as £100,000. Costs to run a full factoring facility start from a few hundred pounds per month. There are two parts to the charges. First there is the cost for borrowing the money which is comparable to a bank overdraft. The second element of the charge is the cost for operating the facility which may include provision of credit checks on your customers, credit control and chasing late and overdue payemnts. Compare this with the cost of employing a full time credit controller or the time and cost of the owner manager chasing the debts themselves this can constitute pretty good vale for money.

overdraft facility withdrawn ?

Monday, July 6th, 2009

It is still common place that banks are removing overdraft facilities and forcing businesses to go down the factoring or invoice discounting route. The rational is that banks perceive overdrafts as more risky and when a customer asks for an increase in limit there is often no further security to justify the increase. More often than not banks will only provide an overdraft secured against property. A small overdraft is usually available against the profitability of the business, say £10-£20k but these are becoming less and less common place. To discourage businsses from renewing their overdraft facilities more and more onerous charges and terms are being seen in the market place. A factoring or invoice discounting facility should in theory provide an adequate working capital facility. Factoring or invoice discounting will provide 80% of any unpaid invoices up front. However like any other finance product the service provided varys immensely between the different financial institutions. Whilst the bank is always a good starting point there are many financial institutions which can compete with the banks on price and certainly will give the banks a run for their money in terms of service. For example some finance companies are excellent at providing trade finance facilities, others can provide stand alone stocking finance, others are excellent at providing a very close relationship to the smaller business. It is important that any business is matched up with the most approriate funder for their particular needs.

Stocking Finance

Wednesday, May 27th, 2009

Traditional it has only been possible to obtain stocking finance in conjunction with a factoring or invoice discounting facility. It has come to our attentiona that there are one or two specialist funders willing to look at stocking finance on a stand alone basis!

Are the banks putting pressure on you due to the Credit Crunch

Tuesday, March 24th, 2009

Running a busines is a challenge at the best of times and keeping cash flowing and paying suppliers and staff is a constant juggling act. This has never been more relevant than in the current economic climate where raw materials , energy and fuel costs and a squeeze on credit are putting pressure on business owners.

XL Business Finance has access to a number of funders who can provide you with flexible funding solutions that can release cash tied up in your company and releive some of the pressure you face every day in business.

refinancing existing machinery

invoice discounting

factoring

payroll finance

Bad Debt Protection

Monday, March 16th, 2009

Non Recourse Factoring provides a certain amount of bad debt protection. In addition to providing cash up 85% of the customers unpaid invoices, bad debt protection is provided against unpaid invoices. However there are two very different schemes run by bank owned factoring and independent factoring companies. Banks can provided blanket cover with their bank owned innsurance scheme. Independents provide insurance offered by 3rd party companies. This is usually provided at a cheaper rate than the customer would get if they went direct to the insurance company themselves. Both schemes have their pros and cons.

Factoring

Monday, March 2nd, 2009

Factoring provides a business cash against unpaid invoices. As credit control is also built into the cost of the facility it is not always easy to compare apples with apples. A high street bank or factoring company will only telephone the top few customers to chase the debt. Smaller independent finance companies more often than not add greater valuer by providing a more extensive credit control facility. Threfore  the chepest is not always the best. In addition confidential factoring provides all the benefits of factoring but in a confidential manner

 
 
 

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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