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.

Non recourse is the same as bad debt protection and can be offered as an add on by most invoice discounting providers.  Pricing generally starts at between 0.45% of turnover and can be high as 1%. This is addition to the normal discounting charges.   As with any form of debtor finance it is important that you choose the right finance company to fund your business.  It is no pointy in going for the cheapest bad debt protection if you are not getting the appropriate level of funding.  An independent invoice discounting company may use a number of different credit reference agencies to set credit limits whereas a bank will use their own in house insurers. It is worth getting an independent broker to check out a few alternatives. Also beware we have seen some banks recently setting quite high individual credit limits only to take it away by capping the overall facility. Certain independent funders will also go the extra mile to get the best possible funding limits.

Independent  Generally speaking 80-85% of  of the value of your invoices can be released immediately. Invoice discounting can be either confidential or disclosed however the credit control remains with the business. From the finance companies point of view this facility is more risky than factoring and as such any finance company offering such a facility will carry out an audit to make sure the correct credit control systems and procedures are in place.

Bank owned invoice discounting companies are very good at looking after their own customers providing the business is financially strong. If there is a strong bank connection with other facilities such as commercial mortgages and /or overdraft facilities the banks will bend over back wards to ensure they get the business.  It is still possible to get some very cheap invoice discounting deals on this basis. Be  beware that if you expose your business too much to one  financial institution you might be storing up trouble for the future. No one could foresee the creditt crunch however in hind sight it easy to say we should have seen what was coming. It is exactly the same with finance facilities. Let the bank have too much control and if things turn for the worse any business with too much financial exposure to one bank may find themselves in difficulties.

An independent invoice discounting company will ensure that any risk is spread across a number of finance companies and that you don’t have too many eggs in one basket. There are plenty of invoice discounting companies glad to take on the invoice discounting  on a stand alone basis and they wont be interested in taking over the core banking.  However if you do choose to use a third party factoring company it is worth checking if the bank isrelying on the debtors for security on any of their facilities. If the business has an overdraft it may be possible the bank have registered a debenture against the business. Therefore if you are to switch to an invoice discounting facility any overdraft maybe withdrawn and this must be taken into consideration with choosing a provider.

However not wishing to give up we secured a finance facility with one of our asset based finance companies. You might think job done but oh no. As part of the documentation process a debenture waiver must be obtained from any funders holding a debenture. This would normally be the bank if there is an overdraft or loan in place or it can be from their existing invoice discounting company. Or it can be both.

Any funder having an all assets debenture has an automatic legal title over any assets in the business so the asset refinancing company must get the equipment released from the debenture via a debenture waiver. More often than not it is the banks which can cause issues but imagine our surprise when the non bank owned invoice discounting company would not release the assts from the debenture.

They refused not because the kit was needed as part of their security but because they were reluctant from a dubious legal point of view. This particular invoice discounting company must have racked a large legal bill of several thousand pounds not to mention the legal costs from the customer’s point of view. In our opinion it was totally unnecessary.

The result was the refinance was delayed by a number of months and we are now in the process of switching the customer to a new and more flexible invoice discounting company. Any refinance of existing equipment should be straight forward at documentation stage and if you have had any similar problems we are here to help.