Asset finance leasing - XL Business finance
  XL Business Finance Blog » invoice discounting

Posts Tagged ‘invoice discounting’

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.

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.

Invoice discounting for a phoenix company

Friday, February 5th, 2010

There are a vast number of businesses going through a prepacked administration process at the moment. These are commonly known as a phoenix company. Agree or disagree with the concept they are an option open to many struggling businesses and are widely being recommended by many insolvency practitioners. However obtaining invoice  finance coming out of the other side might not be as straight forward as one might think. It is very unlikely that a bank will finance a phoenix company. There are a few independent finance companies that will finance a phoenix company however the majority will offer factoring or disclosed invoice discounting. There are only one or two finance companies offering confidential invoice finance facilities. Whether you are offered a confidential facility depends upon how you have conducted t your previous business. All factoring and invoice discounting will take a reference from any previous invoice finance company. In a nut shell if the old factoring or invoice discounting has managed to collect out the old debt you have a much greater chance of being offered a confidential facility. If however the old finance company has struggled to collect out the old debt then you have less chance of being offered a confidential facility.

Why Invoice Factoring is better than a bank overdraft

Wednesday, January 27th, 2010

Hopefully now that we are out of the recession we will once again start to see businesses grow and to flourish. The benefits of invoice factoring during a period of growth are obvious however many businesses will be tempted to go down the overdraft route which in the long term may restrict a businesses cash flow and ability to operate from a liquidity point of view. It is also important that we choose the right factoring or invoice discounting company because not all of them are the same and they don’t offer the same level of funding and flexibility.

The two main problems with bank overdraft the level of the facility is often restricted by the amount of security available. A token overdraft facility without providing additional security  may be available depending upon the level of profitability however more often than not it is never enough. Therefore as a business grows and you need to increase the amount of working capital it may be difficult to obtain an increase. Secondly overdrafts are repayable on demand. Until the recession I don’t think anyone believed the bank would pull overdrafts however during the credit crunch and the recession the banks have shown their true colours. We have heard horror stories about the banks withdrawing overdrafts and forcing companies into administration. With factoring or invoice discounting, so long as you don’t breach the terms of the facility it is not possible for the facility to be withdrawn. And even if you breach the terms of the facility it is more likely that your factoring or invoice discounting provider will work with you to a satisfactory solution.  It is therefore important that you choose your factoring or invoice discounting company carefully to make sure they are approachable and potentially flexible. It is more likely this will not be a bank owned provider but this doesn’t mean a facility will be more expensive.

Protect your cash flow with invoice discounting

Tuesday, January 26th, 2010

News on the high street today is that we are finally out of the recession. This is great news however don’t expect the banks to suddenly ease up on their underwriting criteria. We believe that it will be many months possibly years before the banks get back to where we were before all this kicked off.

Hopefully we will see businesses once again seeing an increase in turnover and as a result more profitable times ahead. Any increase in turnover will undoubtedly see an increase in working capital requirement. Do you really want to rely on the bank overdraft to provide the necessary working capital for your business? I don’t think so. While a business is expanding invoice discounting will provide the perfect cash flow finance facility that will grow with your business.

XL Business Finance has been helping businesses for over 10 years with their invoice discounting and factoring needs. Both are forms of invoice financing that will release up to 85% of unpaid invoices immediately. Providing there are no added complications to your business factoring or invoice discounting facilities can be up and running in a couple of days.

Although an overall funding limit will be set against your business this is reviewed on a regular basis and will grow as your business expands. As and when your customers pay you typically in 90 days from the date of the invoice the proceeds are used to repay the initial 85% advance and the remaining 15% is paid back to your business less an interest payment and a service fee. Interest is charged at a percentage over base rate or Finance House Base Rate and the service fee can range from 0.2% of turnover to 2.5 % of turnover depending on the whether you are utilising factoring or invoice discounting.

Both products are excellent for a businesses cash flow and we can help you obtain the most appropriate funding product.

Business Finance for MBOs

Sunday, January 24th, 2010

There are two ways of obtaining business  finance for MBOs. Firstly banks can do cash flow lends or an asset based lender can finance the assets within the business to provide the cash. The problem with banks is that during the recession they have had their fingers burnt with cash flow lends. Significant amounts of money are lent against the future profitability of the business. There can be potentially little security for the banks and  it easy to see why the banks have been writing off significant amounts of bad debt. During 2009 banks were doing hardly any cash flow lends however during 2010 we can expect this to increase as the economic recovery start to take effect and the banks relax their cautious underwriting approach.

Structured lending or asset based lending takes a slightly different approach to providing loan facilities. Asset based lending usually starts with an invoice discounting facility which will release up to 90% of a businesses unpaid invoices.  On the back of this it might be possible to obtain some form of revolving stocking facility typically at 50% of  the value of the stock. An asset based lender will also advance an amount against the value of the assets probably around 70% of the forced sale value. Money is advanced typically with a 3 year pay back. Certain finance companies also provide Enterprise Finance Guarantee Funding usually at the amount equivalent to any directors contribution to the business.

The problem with both these two forms of financing is that you are relying on one finance provider and as such having eggs all in one basket will leave the funder with an awful lot of control over your business. Whilst it is not possible to split stocking finance away from the invoice discounting it is certainly possible to use a unrelated leasing company to provide funding against plant and machinery. Refinancing existing machinery is relatively easy to do provided there is some value in the kit.

Invoice finance in the construction industry

Friday, January 22nd, 2010

Any business which operates in the construction industry or any business which invoices stage payments as part of a contract knows how difficult it is to obtain funding . Some banks maybe prepared to offer some form of overdraft however as soon as you mention contracts to most factoring and invoice discounting companies they will run a mile. The good news is that there two finance companies providing invoice finance against applications in the construction or any industry involved in stage payments. Depending on your own particular circumstances XL business finance will help you find the most appropriate invoice finance company.

However the two finance companies are very different indeed. One is a bank owned finance company and the other is an independent finance company. The independent company  is in our opinion the leading finance company in this sector and will fund  uncertified application. It also understands that actual payments against application maybe slightly different from the money received and it also understands that VAT and PAYE may have been deducted. In our experience finance via the bank maybe a bit hit or miss. Their  headline prepayment might be higher however they will have a very strict funding limit therefore as the business grows it might be difficult to obtain increased funding. As this is one of the big banks the level of service tends to be a bit hit or miss and not all the account managers understand contractual invoicing. If payments are slightly different they will put the cash to a suspense account because it doesn’t exactly match leading to disallowed credit limits and further reduction in funding.

I addition not all their account managers will pay against uncertified applications preferring to pay against certified invoices which can delay payment further!!!

Need invoice finance advice?

Thursday, January 21st, 2010

There are so many invoice finance products and companies to choose from. A quick search on the internet will reveal hundreds of finance companies all offering similar products and services. Although invoice finance is mainly about getting cash against unpaid invoices there can be a big difference between the many different companies and how they deliver their product. To make sure you get the best factoring or invoice discounting facility for your business it is advisable that you speak with a specialist independent factoring and invoice discounting broker. A good one will know the market better than any accountant and going to your bank for financial advise will be like going to your butcher for open heart surgery.

Thankfully XL Business finance has access to twenty or more factoring and invoice discounting providers. We know the market extremely well and following a brief consultation we know exactly which provider will be best suited for your own particular requirements. We will recommended two possibly three finance companies that we believe will provide the best service for your own unique set of circumstances. The good news is that this does not cost you a penny. We will get an introductory commission from the finance company. All factoring companies pay roughly the same commission so we are not tied in one any one finance company. It would be pointless introducing a business to a finance company that wont provide the best service. The most important thing is that we get you with the right finance company and that you stay with that finance company.

There are many different factors which will influence our choice of finance company. Do you need factoring or invoice discounting, geographical location is important, turnover, number of debtors, quality of debtors, debt turn, how long your business has been established and the level of profitability are all important aspects and ill have a bearing on the right finance company.

invoice finance or overdraft

Friday, January 15th, 2010

Without a doubt we would recommend invoice finance over a bank overdraft any day of the week. There are obviously exceptions of course. Invoice finance provides 80% of your unpaid invoices as soon as you have raised your invoice. It provides a flexible approach to your working capital requirements. Obviously this wont work if you are getting cash on delivery or on the point of sale. Uner these circumstances you would need an overdraft facility to provide you with adequate working capital.

There are many advantages to invoice finance compared with a bank overdraft. Overdrafts are normally secured aginst property and are fixed at a set amount with little scope for increasing as your business grows. More importantly it should be noted that a bank overdraft is repayable on demand. If your business takes a turn for the worse potentially the overdraft can be withdrawn without notice. Unfortunately in the current economic climate we have seen happen all too often. This will never happen with an invoice finance facility.

Invoice finance can be provided by way of a number of products. Factoring in addition to providing cash against unpaid invoices provides a credit control facility. Invoice discounting can be provided on a confidential basis and as such only provides a working capital facility. Invoice discounting is suitable for more established businesses who will have their own credit control facilities in place. Different finance companies provide slight variations on these two products but in main these are the two most common invoice finance products.

A quick search on google will reveal hundreds of potential finance companies. Banks are good at invoice discounting however there are independent companies that are capable of providing an equally acceptance product. As a rule of thumb independents are better at providing factoring products. XL Business Finance can help you find the most appropriate finance company.

Is it Possible to get overpayments with invoice factoring

Thursday, January 14th, 2010

Invoice factoring provides cash against unpaid invoices. Most finance companies will pay up to 80% of unpaid invoices and give you credit of up to 90 days. Before the credit crunch it may have been possible to obtain up to 90% of your  sales ledger however this is very uncommon in the the era of  very cautionary finance companies. When choosing an invoice factoring company it is important to take into consideration how flexible they may or may not be.

 Imagine coming to the month end and there are not quite enough invoices in the pipeline to draw down enough cash to pay the wages. However you have a few big  jobs around the corner and you know you will catch up the following week. If you are with a bank based factoring or invoice discounting company and you need a bit of extra cash then good luck trying to find a decision maker. If you have chosen a smaller and sometimes independent factoring company you will have a much greater chance of getting an overpayment. At XL Business Finance we do have clients who have moved to bank based factoring companies and have moved back to smaller independent for this very reason. They know at the end of the month that if here are going to be any short term cash flow problems they need a flexible finance company that they know that after one phone call and no more than 24 hours later they have some extra cash.

An independent factoring company is one that is not bank owned and therefore does not have the same red tape and bureaucratic hierarchy to go through to get decision done. They have usually been set up by quality guys that have been within the factoring and invoice discounting industry for many years. The MD will sit in the same office as all the other staff so special requests and help can be obtained by walking straight into his or her office.

 
 
 

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

 

Manchester, Liverpool, Leeds, Preston, Sheffield, Stoke, Merseyside, Lancashire, Cheshire, Staffordshire