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Posts Tagged ‘invoice discounting’

How to choose an invoice financing company

Sunday, May 9th, 2010

Without a doubt invoice financing is still the most buoyant and flexible form of business finance today. However there are so many different invoice financing companies and products  to choose from how can you be sure that you are using the most appropriate and best value funder for your business. Luckily XL Business finance has been helping businesses for over ten years to choose the most appropriate funder.

Too often the easiest option is to be  railroaded into your clearing banks factoring or invoice discounting company. This may not always be the best option. As you probably know factoring and invoice discounting release up to eighty percent of a businesses unpaid invoices in ready cash ready to be used for working capital requirements.  However there a number of factors that need to be taken into consideration when choosing a finance company. Like any business different factoring and invoice discounting companies have different sweet spots. The problem with the high street banks is that try and be all things to all men and can often fall short on service and delivery compared with other independent providers. In certain circumstances the bank may be the best choice and indeed one bank in particular is exceptional providing international trade finance whereas another is most excellent in providing funding against contractual debt.

In addition certain finance companies are most excellent at invoice discounting but struggle to add the required level of service to deliver a competent full factoring service. When it comes to full factoring with credit control and debt collection specialist and independent factoring companies provide a far superior products to the banks. It can be difficult to argue against the banks when it comes to invoice discounting however there are benefits to choosing a third party provider such as not having too many eggs in ones basket.

invoice finance or bank overdraft

Friday, May 7th, 2010

As you will gather if you care to read through any of blogs that this is a favourite subject of mine. And for good reason too. We have seen a number of what looked like very strong businesses fall foul to the banks in terms of having too many eggs in one basket. Although the banks will never publicly admit there appears still to be a tendency to call in their security if they think they have half a chance of clearing their debt. A bank that has a debenture over the business can appoint an administrator at any point they wish to do so. And how do they obtain a debenture. well you would normally give it when you take out an overdraft. Just one of those documents that they slip under your nose when signing all the other paperwork. Overdrafts are always repayable on demand and for this reason we believe that any form of invoice finance is a far better alternative.

Invoice finance which can either be factoring or invoice discounting cannot be withdrawn at a moments notice and so long as you are operating within the terms of the facility should provide you with a reliable and consistent form of cash flow finance. Unlike a bank overdraft which is secured by bricks and mortar and or a personal guarantee invoice finance is secured against your unpaid debts. So long as your customers pay their debts you should never be at risk. In addition it is often possible to obtain credit insurance for if any of these customers god forbid go bust on you.

A Guide to Invoice Financing

Wednesday, May 5th, 2010

Again Invoice financing is a generic term for factoring and invoice discounting all of which provide funding against your unpaid debtor book. Because invoice financing is secured against your debtor book it is a very flexible form of finance that grows with your business. It is fast becoming the first choice cash flow facility for many businesses replacing bank overdrafts which by comparison are restrictive in terms of proving cash and onerous in terms of security and flexibility.

Invoice discounting is usually provided in a confidential manner and is normally appropriate for businesses that are established , profitable and have good internal credit control procedures. Most invoice discounting companies will release up to 80% against your debtor book with the remaining 20% being paid to you when your customer pays less any charges due.  There are usually two charges for the operating the facility. Firstly there is the interest charge , an amount over bank base rate which is applied to the amount of cash you actually borrow and not the facility amount. The rate is usually comparable to a bank overdraft and in some cases can actually be cheaper. The second charge is for operating the facility and this is charged as an percentage of actually turnover. The amount charged depends upon the turnover, the number of invoices and also the quality of your invoices. Most invoice discounting companies have a comparable charging structure.

Factoring is usually provided on a disclosed basis SO that your customers are aware that you are factoring your invoices. Because factoring finance is provided in a more open format it is usually available to most businesses including new starts , loss making businesses and businesses that have been declined invoice discounting. The facility is provided in exactly the same way however the factoring company will be responsible for credit control and will add value to your business for making sure that your invoices are paid on time.

A Guide to Invoice Finance

Tuesday, May 4th, 2010

Invoice Finance is the means of obtaining cash against unpaid invoices. More and more debtors or customers require up to ninety days credit terms in order to pay for their goods and services. Invoice finance provides up to 80% of these invoices immediately providing a valuable working capital facility.

Confidential invoice discounting is a form of invoice finance and as the name suggests the facility is provided in a format whereby your customers are unaware that you are discounting your invoices. Many businesses for a variety of reason would rather keep these matters confidential. However confidential invoice discounting is not on offer for every type of business. Invoice discounting can be susceptible to fraud and as such a business must be well established, be profitable with a sound and profitable trading history. A suitable credit control system must also be in place which the potential finance company will require to check o ensure you are capable of collecting your invoices.

Factoring which is similar to invoice discounting provides credit control as an additional feature. The factoring company will chase your customers ( usually by phone) on your behalf to ensure your invoices are paid in an efficient and timely manner. As your customers are aware that you are factoring your invoices and the finance company is in regular contact with your customers the facility is less susceptible to fraud.  Therefore just about any type of business will be able to obtain a factoring facility. New starts, loss making businesses, phoenix companies are all welcome to apply!

Invoice Financing Explained

Monday, April 26th, 2010

The ability to obtain cash against your unpaid invoice can have a massive affect on your businesses cash flow and hence your ability to trade. Invoice financing is the generic term for factoring and invoice discounting both of which will release up to 80% of your unpaid invoices. The remaining 20% is paid when your customer pays you less any charges due to the invoice discounting company. As cash becomes more and more tight we understand that credit terms are being stretched further and further. Invoice financing is the perfect solution to ease your Cashflow and unlike a bank overdraft the facility is not repayable on demand and will grow with your business.

However there is a subtle difference between factoring and invoice discounting. Whilst both products release cash against your total debtor book factoring usually provides credit control as an additional service and invoice discounting is usually provided on a confidential basis. Which facility is best for your business depends on your own requirements and trading performance. XL Business Finance is one of the countries leading factoring and invoice discounting brokers and we have been helping businesses for over ten years obtain the most appropriate funding partner. You wouldn’t go to your butcher for open heart surgery so why go to your bank for finance advise. We believe that we are more qualified and better placed to help a business choose the best funding partner.

As invoice discounting is usually provided on a confidential basis this means that your customers are unaware that you are discounting your invoices. The finance company is unable to call your customers and verify the amount of your invoices. therefore invoice discounting is deemed to be a more risky facility and as such is usually only available for profitable more established businesses that have th necessary controls and procedure in place. Factoring however is conducted in a more open way and as such the finance company can call your customers to check invoice amounts and as such it is a facility more widely available.

Invoice Finance or bank overdraft for an SME

Thursday, April 22nd, 2010

It appears that a bank overdraft as a means to financing a businesses cash flow requirements is becoming second place behind invoice financing. For starters it appears to be more and more difficult to obtain an overdraft. For many businesses it may be that they can obtain a token amount of £10-£20k and this may depend on the length of time a business has been  trading and whether it is profitable or not.

An invoice financing facility such as factoring or invoice discounting is secured against the unpaid invoices of the business. As a rule of thumb you can obtain 80% of your unpaid debtor book on a revolving credit facility. Therefore as your business expands so does the size the available facility. And it doesnt matter how the performance of your business fluctuates it is not repayable on demand.

The problem with a bank overdraft it is repayable on demand. Up until the last year or so it was virtually unheard of  for a bank to withdraw an overdraft. Not any more . We are often hearing of situations whereby an overdraft is being reduced following a poor set of results. This will never happen with an invoice financing facility which isn’t repayable on demand. In addition once you get on with a bank overdraft it may be difficult to move away. The bank may offer you a factoring or invoice discounting  in addition to your bank overdraft however we often see the total facility being restricted. You may find that you may have had more funding using an independent factoring company or invoice discounting facility that specialise in invoice financing. Beware!!!!!

Invoice Finance explained

Wednesday, April 21st, 2010

We had a request yesterday from a web development company wanting some form of  invoice finance. They had aboiut fifty customers on twelve month contracts all of which paid a ten percent deposit on the work to be done and then on a monthly basis thereafter. They were invoicing at the beginning of each month for the work to be carried out for the following month. Invoice financing only works for work that has already been carried out and that is being invoiced with credit terms of thirty, sixty or ninety days. Although we were not able to help we put this enquirer in touch with a company that can offer contract finance , a totally different product.

Invoice Finance can either be in the form of factoring or invoice discounting. As a business you provide goods or services to your customers and provide credit terms. Invoice finance provides immediate cash of up to 80% of these unpaid invoices on a revolving credit basis. Whether it is factoring or invoice discounting that you desire as son as your customer payd the outstanding invoice you receive the remaining 20% of the invoice less any charges.

Factoring provides crdit control in addition to the cash and is provided on a disclossed basis so theat your customers are awrae that you are factoring your invoices. Becauseth the factoring company is able to verify invoices this form of funding is also available for new start businesses, insolvent or businesses that have been struggling

Invoice discounting is provided in a confidential manner and as the finance company is unable to verify invoices this form of invoice finance tends to be made available for established businesses with a good performance history who are unklikely to take the invoice discounting company for a ride.

XL Business Finance has years of experinec in helping businesses choose the right invoice financing company for their particular needs

invoice discounting vs factoring

Sunday, April 18th, 2010

And the winner is! It depends!

Both an invoice discounting and factoring facility will release up to 85% of your unpaid invoices on a revolving credit basis. In theory both facilities will grow as your turnover increases providing you with valuable cash and working capital. In our opinion both are far better than a bank overdraft which is not as flexible and will be capped depending on how profitable or the level of security available.

Both factoring and invoice discounting charge an interest rate for the amount of money that you borrow which is comparable to a bank overdraft. If you don’t use the facility than there will be no interest payment. The rate of interest may vary from between one and a half percent over base to as much as three percent over bank base rate. Some finance companies charge their interest rate to Libor which at the moment doesn’t make much difference because both are about the same. Beware some finance companies charge a minimum base rate so you need to double check the small print.

The main difference is that factoring provides credit control whereas invoice discounting is provided in a confidential manner and provides a cash flow facility only. As such the service fee with a factoring company  is usually higher than with invoice discounting. With factoring they will call your customers and ensure that payments are received within the ninety days permitted. Although the costs of factoring his higher for smaller businesses compared with the cost of outsourcing credit control it can be a very cost effective form of finance.

However if you are a new start business, have a small net worth or are having trading difficulties you are unlikely to be offered invoice discounting. This is because invoice discounting can be  susceptible to fraud. As invoice discounting does not enable the provider to do any checks there have and will be cases of fresh air invoicing.

Bad Protection Grows

Friday, April 16th, 2010

It appears according to a number of factoring and invoice discounting companies  that bad debt protection is one of the fastest growing finance products. Bad debt protection is added onto a factoring or invoice discounting facility and provides an insurance policy against any of your debtors going bust. It is otherwise known as non recourse factoring or invoice discounting.

These figures support and emerging trend for better organised businesses to protect themselves against the recession. Businesses have been driven to asset based lenders early in the recession for their accessibility an reliability as the banks become more difficult to deal with and pulled down the shutters. Even as we speak the importance of asset based lenders is taking on a greater importance as factoring and invoice discounting facilities are able to link their facilities to sales performance. This market is uniquely equipped to protect against over trading by ensuring that appropriate levels of funding are provided against a businesses sale ledger.

Experience suggests (and it was someone older than me that told me) that insolvency increases as we come out of a recession, so it makes to sense to protect your business with bad debt protection. As with any finance company, different factoring and invoice discounting providers provide different levels of bad debt protection. The banks tend to use their own in house insurance companies whereas the independents obtain their bad debt protection from independent insurance companies.  Which one is better for you depends on the spread and quality of your debtor book.  As one of the countries leading invoice discounting and factoring broker, we can help you obtain the best level of bad debt protection.

Benefits of using a commercial finance broker

Tuesday, April 13th, 2010

With Easter over for another year, now is an appropriate time to discuss not having all your eggs in one basket for next year?

Almost every day we see lenders creating serious issues with companies who have their main trading account, invoice discounting , asset finance lines and property loan with one funder. Whilst there can be rare occasions when this is of benefit to you it is better for you to split your banking. 

One of the main reasons for having just one funder is that the owners/directors of business don’t want to have more than one relationship as they don’t have the time to manage multiple lender relationships. This is a valid point but the pitfalls can outweigh the advantages. Two examples seen recently: 

1 Wife of director had finance refused on a new car she was purchasing. Husbands business showed a loss through management information which was a condition of the bank’s overdraft facility. 

The Bank had advised all of its subsidiary companies of the loss, even though the next month it was back in profit. 

2 Client wanted to move his invoice finance line to another provider to provide more funds. Bank refused to allow this as they also had a property loan to the business and wanted to retain the invoice facility as additional security 

It’s becoming more common for companies to interact with their funders through a third party or commercial finance broker. Whilst your accountant could do the role owners/directors are turning to experienced finance professionals who understand how banks work. 

By anticipating any issues and working with all parties this improves the relationship with the funders and saves the owner/director considerable time which is better spent on running their business. This could be for a specific project or on a retainer basis.