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Factoring with a poor trading performance

Monday, February 22nd, 2010

Many business believe that they are not eligible for an invoice finance product because they have a poor trading history. This will almost certainly be the case if you require an invoice discounting facility. This might also be true if you approach a high street bank for either invoice discounting or factoring. The good news  is that even if your bank has knocked you back for a factoring facility there are many independent factoring companies specialising in this area and they are able to take a more flexible approach to helping a business.

The problem with the banks is that factoring and invoice discounting is not really what they are about or it is not a core product. In our opinion most banks are a jack of all trades but a master of none. An independent grows its business on the back of the smaller and more challenging deal. It is willing to go the extra mile to assist a business. It understands that the sucess of running a factoring factoringcan be the difference between a business succeeding or failing. It also will take into consideration the quality of your debtor book which if it is of good quality it will certainly assist in obtaining a factoring facility.

Remember there are so many factoring companies to choose from and as such it can be a minefield when it comes to choosing the best provider for your business. A good independent broker will be able to narrow the oice of finance companies down to the best two or three saving you time , effort and money. WHICH ONE IS BEST FOR YOUR BUSINESS WILL DEPEND ON YOUR LOCATION, TURNOVER, QUALITY AND QUANTITY OF YOUR DEBTOR BOOK AND THE LEVEL OF ANY PROBLEMSWITHIN YOUR BUSINESS.

Small Business Invoice Financing

Friday, February 19th, 2010

Invoice financing provides cash against your unpaid invoices. Most factoring and invoice discounting companies will release up to 95% of your newly created invoices immediately with the remaining 15% being paid when your customer settles the invoice in full. For small businesses that might find it difficult to obtain a bank overdraft invoice financing can provide much needed working capital. As mentioned in previous blogs not all finance providers are the same and this is even more relevant when it comes to a small business choosing the right invoice financing company for their business. XL Business Finance has been helping small businesses for over 10 years obtain the most appropriate and flexible financing solutions.

Factoring can be obtained with a turnover of not much less than £100k per year. There are a number of small businesses which specialise in providing factoring services to the smaller business so it is always worth approaching one of these companies. Some of the larger independents are also very approachable and provide a quality service. With factoring our recommendation would be to choose a factoring company which is local to your business and one that actually specialises in factoring. Factoring is very much about adding value because not only does it provide cash against your unpaid invoices factoring also provides credit control leaving the owner with time to do other things. For this reason we do not tend to recommend the banks for factoring as it is more of an add on product than anything else.

For a small business it is more difficult to obtain a confidential invoice discounting facility. Traditionally invoice discounting has only been offered to business with turnover of £1.0m plus. However there are one or two invoice financing providers that will prefer to offer invoice discounting.  It all depends on how long the business has been trading, the previous track record and the systems and controls the business has inplace for credit control.

Changing Invoice Factoring company

Wednesday, 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

Tuesday, 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

Monday, 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.

How debt factoring works

Thursday, 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.

Invoice factoring and overpayments

Tuesday, 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.

Protect your cash flow with factoring

Tuesday, February 2nd, 2010

Still one of the biggest complaints we have from customers is the length of time it is taking their customers to pay. Fr0m the smallest of companies to the  the biggest PLCs the word on the street is that businesses are taking longer to settle their debts. Debt turn is increasing causing further misery on already cash strapped businesses. The good news is that factoring with the right finance company will not only release up to 85% of your unpaid invoices it will also provide a credit control facility whereby the finance chase your debts on your behalf.

Beware though not all factoringcompanies are the same. When credit terms are being stretched to the limit it is important that you get a factoring company that has a reputation for collecting invoices quickly, professionally and efficiently. You ill be surprised that there is a massive difference between service between invoice finance companies. For example many og the high street bank based factoring companies will nly chase your top 3 companies the leaving the rest to be chased by letter. No wonder some of the high street banks can do it so cheaply. Remember factoring is a value added product and by a certain degree you get what you pay for.

Other factors also needed to be taken into account. For example some the largest based factoring companies  will have their credit control in one town, their payment centre in another end of the country and their sales office in timbuktoo. How can they possibly provide an efficient service. In a nut shell they don’t . Monies get paid to suspense accounts while they run around trying to work out where they need to appropriate the cash.

To find out which invoice factoring company will be best for your business give Managing Director Mark Redman a call on 07748 635 206 24/7.

Factoring Contractual Invoices

Friday, January 29th, 2010

Following a recent blog refinancing contractual invoices please find below some summary pointers re factoring and invoice discounting of contractual debt.

Release of funds against uncertified invoices

Confidential. Ie customers are unaware of the finance companies involvement

Funding complimentary with most industry contracts

Dedicated specialist management team sales/operation including QS resource

Funding available to su[pport SMEs

Contractors from start up to £50m turnover

Funding requirement up to £3.0m

Most industry sectors

Growing companies with additional working capital needs

Often operating on restrictive bank facilities

 

XL Business Fiannce has first hand experience  of helping business organise contractual invoice financing. Give us a calltoday to find out how we can help you

How to choose an invoice financing company

Friday, January 29th, 2010

Ok so we have established over the last few blogs that as the UK emerges out of the recession that using banks for working capital funding and in particular bank overdrafts is probably not the best form of finance. However there are so many invoice financing companies available how do you know which one will suit your particular business and who will give you the best deal. There are many factors that should be taken into consideration when choosing a provider. First there is a big difference between invoice discounting companies and factoring companies. The finance companies that are good at factoring are not always good at invoice discounting and visa versa.

Although both financeproducts will release cash against unpaid invoices of up to 80% factoring is more more of a service orientated product providing credit control as an added benefit. The idea is that you outsource this to the factoring company who will chase your customers and make sure the cash comes back to the business in a timely fashion. The cost of the factoring service is minimal compared with employing a full time credit controller. However with factoring cheapest is not always best. Although there isn’t a massive amount of difference between costs you do tend to get what you pay for. If you pay peanuts for a facility you will probably get monkeys chasing your customers if they can be bothered at all.

The service aspect is less important when it comes to invoice discounting however the bigger the financial institution the further you are away from a decision maker there if you need some flexibility a smaller company can provide quicker turnarounds. Confidential invoice discounting as it suggests is kept secret from your customers and it provides a working capital facility that unlike a bank overdraft grows with your business.

 
 
 

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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