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I want invoice discounting but I have only been offered factoring!

Sunday, January 10th, 2010

We are seeing many businesses being forced by their banks  to use factoring as opposed to more risky invoice  discounting. This is usually following some adverse trading conditions where the bank wish to keep a tighter grip on the business. The good news is that there are still one or two independent based finance companies that would rather fund via confidential invoice discounting rather than factoring.

Although factoring and invoice discounting are both forms of invoice finance it is traditionally harder to obtain invoice discounting as opposed to factoring. From the point of view of any finance company invoice discounting is a far riskier finance product. Usually invoice discounting is provided on a confidential basis. Many customers prefer the confidentiality that invoice discounting provides as there is still in some circles a stigma against using such products. However the confidentiality of invoice discounting does bring its risks from the finance companies point of view. As the customer you will send copy invoices to the finance company against which approx 85 % of the value of the unpaid invoice is paid upfront. As such invoice discounting is more open to abuse and as such a business must normally have been trading for a number of years, have a strong balance sheet and be profitable before a bank will consider them for invoice discounting.

With factoring the fiannce company maintains afar greater degree of control as the financec ompany will verify the sales ledger on a regular basis and will have more hand on approach to running the facility. Therefor phoenix businesses, loss making businesses and new start businesses may be eligible for factoring but not invoice discounting.

However one finance company we do business with would rather do invoice discounting as opposed to factoring. For the first few months of the contract they will keep a close eye on it and run a shadow ledger and if everything goes well ther business will have a fully operational invoice  discounting facility.

Invoice Discounting Charges Explained

Wednesday, January 6th, 2010

Invoice discounting is the ability to raise up to 85-90% of a businesses unpaid invoices. There are approximately fifty or so providers based in the UK all offering a similar service. As explained in other posts not all finance companies are the same and as such great care should be taken when choosing a finance company. Most invoice discounting facilities can be run on line and at the end of the day the client will send a copy of their sales day book to the discounter. The discounter will then make available 85% of the invoices available for draw down by the client. The client runs the sales ledger and collection and makes telephone calls to chase the debt. The client collects payments from their customer and pays the money into a trust account. The discounter collects the funds from the trust account and pays back the remaining fiftenn percent less the charges for running the facility.

There are two main charges in invoice discounting agreements. The service fee is a percentage of the clients turnover for the privilege of operating the facility. These costs can vary between 0.1% -1% of turnover depending on the circumstances of the facility. The second charge is the cost of borrowing the money which is an interest charge for the priveledge of borrowing the money. Charges are usually 1-2.5% over the cost of borrowing. Some providers will link to bank base rate and others will link to LIBOR, which at times can be completely different. In addition some invoice discounting companies will charge a minimum base rate and as such the headline interest rate must be viewed with an air of caution.

If base rates  are low as they are now and we are expecting rates to go up a lower add on rate with a higher minimum may be better tan a ower min but with a higher add on.

Business Financing in 2010

Sunday, January 3rd, 2010

Without a doubt 2009 was the toughest trading year for any business that most of us can remember ( unless you are selling Pizza or home safes!). No one was expecting the recession however with hindsight it is easy to say ” I told you so”.  Twelve months ago there were a dozen or so high street finance companies and banks offering hire purchase and finance lease facilities. At the moment there are only a handful remaining. Many an  independent finance company and bedroom brokers have gone out of business. The longer established independents have the experience and expertise to add value to any business financing. At XL Business we have been helping our clients for over 10 years with their business finance requirements. We envisage the banks being extremely difficult for at least the next 12 months so it is important that you use an expert to help your business with  your funding requirements.

A fellow broker of mine has a brilliant quote on his website ” You wouldn’t go to your butcher for open heart surgery so why would you go to a bank for financial advise” Dick and Rick if you read this quote I will buy you a pint. At XL Business Finance we couldn’t agree more. We reckon for just about nearly every financial product a bank offers we could find another lesser known financialproduct offering the same product either at a better price or with a much better service. This is particularly true of  factoring and invoice discounting products. There are a few instances that we recommend banks but how do you know which one to approach. There are just so many factors that need to be taken into account. One high street bank is very good at export debt for example but only if you are profitable. One high street bank is pretty good at financing contractual debt but how do you know which it is. Give us a call and we can make the referral for you. Its free!!!!

 

Happy New Year from XL Business Finance

Friday, January 1st, 2010

Unlikely anyone is reading the blog today especially when most people will be hung over in  some form or another. However we wanted to take the opportunity to wish all our customers all the very  best for 2010. Most of will be delighted that 2009 is behind us which can only be described as the worst year from a business point of view that any us can remember. Anyone who says that they have had a great year is lying. Most businesses have been treading water at best and the ones that have survived 2009 and can survive the continued turmoil in 2010 will undoubtedly be in a very strong position when things eventually start to pick up.

Although there were signs at the back of 2009 that business was starting to pick up 2009 has very much been a year of peaks and troughs and hopefully for your business the peaks have just about been better than the troughs. In our opinion the economy in its very fragile condition will bumble along during 2010 and hopefully we will see a big improvement during the latter part of the year. We expect the banks and high street finance companies to continue to be difficult and as such raising any kind of business finance via the high street will be extremely difficult.

On the up side there are plenty of privately owned finance companies looking for the right kind of deal. Whether it is a finance lease or a hire purchase facility required to help with your capital expenditure requirements or you are looking for a factoring or invoice discounting facility to release cash against your unpaid debtors there will be a finance company somewhere that will be willing and able to help most businesses and scenarios! XL Business Finance wishes every single business all the best in 2010. Lets hope its better than last year!!

Invoice factoring (3)

Thursday, December 31st, 2009

It has always been said that the biggest problem that any business will face is getting cash out of their customers. Most SME’S will go bust because of inefficient cash flow. Can a business really rely on its customers paying within the normal 30 day credit terms. Probably not.  And is it really wise relying on a bank overdraft which will be capped depending on the level of security available. In addition a bank overdraft can be withdrawn at a moments notice and is potentially always repayable on demand! Invoice factoring will provide a evolving credit facility for up to 90 days against 80 – 90% of your unpaid invoices.

Invoice factoring is a form of cash flow facility which includes factoring with credit control, invoice discounting and confidential invoice discounting. An asset based invoice factoring company may also provide stock and asset based finance. These forms of cash flow products will grow with your business and provide far more working capital than any bank overdraft will be able to provide. Which type of facility is best for your particular requirements depends on how long your business has been trading, the number and the quality of your invoices, the location of your business, if you require credit control and whether your business is profitable or not!

In addition there are over 50 factoring and invoice discounting companies all offer similar products and services. By asking a few simple questions XL Business Finance can  narrow the funders to two or three of the ones most suitable for funding your business. We have over 10 years of experience in helping many requirements with their own particular and unique set of circumstances. The good news is that this will not cost you a penny. Our service is absolutely free!  Please feel free to give the Managing Director Mark Redman a call on 07748 635 206 to find how we can help you.

Invoice Financing for an SME

Wednesday, December 16th, 2009

Without a doubt there are still many options when it comes to obtaining finance against your unpaid debtor book. The ability to release up to 80% of your unpaid invoices can provide a financial life line for many businesses and can provide a viable alternative to any bank finance arrangement.  Invoice financing is still an area of finance where there still seems to be many finance companies in the market for writing new business however how do you know which provider is best for your particular requirements. XLBusiness Finance has been helping many businesses obtain the most appropriate factoring and invoice discounting products based on their own unique set of personal circumstances.

Depending on whether a business requires factoring or invoice discounting we may recommend a completely different finance company. Although invoice discounting is less about providing a service the cheapest is not always the best because credit limits on individual customers and the overall funding limit must be taken into consideration. Also a bank invoice discounting company may be providing the cheapest facility however the banks are not always the best choice if your business experiences any difficulties. Factoring on the other had is all about adding value in terms of providing a credit control and efficient collection service.  Banks quote cheap rates however they are not the best at collecting the cash. An independent that doesn’t necessarily have to be more expensive will provide a much better service.

In addition we will take into account your geographic location, your turnover, the quality of your debtor book, whether there is a contractual element to your invoicing, the quality of your own internal procedures and of course the size of your required funding limit. Within a few minutes of your time and asking a few of these basic questions we guarantee to narrow the most appropriate finance company to to or three. This will save you time and money and free you to get on with running your business.

My bank wont give me invoice discounting

Tuesday, December 15th, 2009

Invoice discounting is only one of several invoice finance products available in the market place. Invoice discounting is mainly provided on a confidential basis and as such is commonly known as confidential invoice discounting. How it works is that  a customers will raise an invoice in the usual manner and post a copy to the finance company. the finance company will then make a percentage of the invoice available to the business typically 80%. All this can be viewed on line and different finance companies have slightly different systems and procedures when your customer pays you the finance company is repaid and a small fee is paid to the funder.

As  invoice discounting is quite a trusting way of operating a facility and is very much open to fraud and missuse any finance company requiring an invoice discounting facility  must be squeaky clean, be reasonably profitable, be very established and should have adequate systems and procedures in place. Therefore as most banks, in terms of underwriting, tend to be over cautious in the current climate and will shy  away from offering such facilities. A factoring facility will give the bank more control over the ledger as payments from your customers must be made direct to the invoice discounting company.

The good news is that there are a few alternative finance companies that will take a few. Most finance companies will put a customer on factoring and if they prove themselves then after a period of time they may allow the customer to go to confidential invoice discounting.   A half way house is for the finance company to  leave the credit control with the client however payments are made direct to the finance company. XL Business Finance has helped a number of businesses that have been refused invoice discounting via their banks however we have been able to help by providing a funder that will give the customer a chance on invoice discounting. If it doesn’t work they will put them on factoring.

Invoice discounting credit limits

Thursday, December 10th, 2009

In theory  invoice discounting finance will release up to 80-90% of your total invoice book. All finance companies have  eye grabbing headline rates and promise the earth when it comes to  releasing cash. However the biggest problem with invoice finance and factoring is that it is very difficult to obtain funding against a client if they have a very poor credit rating.  As most  finance companies will tie you into a 12 month contract or even longer it is imperative that when choosing a finance partner  that potential credit limits are taken into consideration. XL Business Finance has over 10 years experience in helping and advising clients choosing the the correct invoice finance company.

Different finance companies have differing policies when it comes to credit limits for invoice discounting and factoring.  For example certain banks will not fund a debtor at more than 20% of your total turnover. Other financial institutions may be happy to fund a debtor no matter what the percentage of turnover. Recently we have seen one high street bank provide a £10k limit against all a businesses turnover. Not brilliant if your business is dealing with a few large businesses. However this could very useful if your businesses have many different customers and the outstanding balance is below £10,000.

What we recommend is that if you have been unhappy with your existing finance company as an independent finance company we can analyse your aged debtor report and work out what funding limits you may obtain with a variety of different finance companies. You could do this your self however you might find you are talking to the wrong companies. We can save you the time and the hassle and more importantly it wont cost you a penny. Give us a call today and find out how one of the UK’s leading independent business finance and invoice finance companies can help your business.

Invoice Finance in a recession

Wednesday, December 9th, 2009

The ability to raise cash against unpaid invoices is probably a more a necssity than a luxury in the current econimic climate. There are so many invoice finance  providers to choose from and it is imperative that you choose the right funding partner for your business. It is no point going with a finance company that provides a headline rate of 90% against unpaid invoices if they are very restrictive on individual credit limits and you only end up with 60% funding. XL Buusiness Finance has over 10 years experience in the factoring and invoice discounting market and can help your business find the most appropriate funding partner.

Any search on google will reveal millions of results for invoice finance. There will be banks , independent finance companies and brokers all vying for your business. An independent finance company is  an actual lender that is not bank owned,  whereas a broker is not a lender and will take a commission from the finance company for introducing you to the most appropriate funder.  During a recession it is important that you choose the right funding partner. An independent finance company will tend to be more flexible than a high street bank.  There are many independent factoring and invoice discounting companies and which one is most suitable for your business will depend on your geographic location, how long you have been trading, the quality and number of your invoices and whether you are profitable or not. If any part of your debtor book is contractual than there are only one or two finance companies which can potentially provide funding for your business.

As a rule of thumb if you need a factoring facility with full credit control we would not normally recommended a bank. The independents tend to be better at credit control and are normally better at collecting the debt. If your business is very profitable and squeaky clean then invoice discounting via the banks might be more beneficial. However for every high street bank we would be able to recommend another invoice discounting company that is bank owned but has their own autonomy.

Invoice Financing in a prepacked administration

Friday, December 4th, 2009

Like it or not we will probably see allot more pre packed administrations in the new year. Word from the insolvency practitioners is that the inland revenue and customs and excise are taking a tougher approach on PAYE and VAT arrears.  With the traditionally quiet Christmas period and allot of businesses already struggling ,  I think we will potentially see a few more casualties as businesses cecome  even more strapped for cash.

A prepacked administration is basically a deal whereby the business goes into administration and the following day a new company is set up to purchase the assets of the administrator.  In the process the business potentially dumps a load of debt and should be more viable moving forward. Providing factoring or invoice discounting in such a process is a very specialist area and it is advisable to chat to a good broker as to which finance comapny weill provide the best funding.

 I believe it can be argued justifiably for and against a phoenix company. On one hand why should any financial institution support a business which has gone bust and potentially has caused financial pain and grief to its creditors. On the other hand a phoenix business is potentially a leaner and meaner organisation , has a much better chance of trading profitably and will have saved a few jobs in the process.

Invoice financing in a prepacked administration is quite a specialist area and there are only a handful of financial organisations which can truly finance a prepack.  The idea is that an  invoice discounting company will take out the existing finance company prior to the pre pack. In ding so it ensures that an administrator   is on the side of the directors.  The new finance company will collect the debt from the old co and will in theory seamlessly finance the new co as well. A bank for example will appoint their own administarator and as a rule of thumb they wont provide a factoring or invoice discounting facility for the new co.

 
 
 

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.

 

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