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Are banks doing enough?

Thursday, September 3rd, 2009

Welcome to what is becoming  the usual bank bashing blog. Time and time again we see the banks looking at ways of restricting cash to their customers. No doubt they think they are not doing it on purpose however when customers need the banks more than ever in these difficult times the banks continue to pull in the credit.

Yesterday we reviewed an invoice discounting facility operated by one of the big four banks. Although the business has been trading for less than 12 months most of their customers are blue chip  and as such there were no problems obtaining decent credit limits. However this particular bank would only fund up to a maximum of 10% of the total debtor book for any one customer. Therefore if one customer represented 20% of turnover and say for arguments sakes this amount was £200, 000 of turnover, invoice finance with this particular bank would only provide 80% of £100,000. Now imagine three or four customers represented more than 10% of turnover this could have a massive affect on available funds. In the case we looked at the headline prepayment was 85% of outstanding debtors however in reality only 51% was actually being funded. As one can imagine this is having a massive detrimental affect on cash flow and their ability to trade.

Not all invoice factoring companies will provide such inflexibility and a well chosen invoice factoring company can often provide the right flexibility.

Financing A Prepack

Monday, August 10th, 2009

A prepack other wise known as a phoenix is whereby a business goes into administration with the intention of the directors purchasing  the assets ofthe business in a newly formed limited company.   Not all finance companies will fund prepacks so it is important that all ones ducks are in line before a business pushes the button.

It is important to have the right factoring or invoice discounting company in place. As banks more often than not will not finance prepacks  it may be advisable to replace the bank owned finance company with a friendlier  and more accommodating finance company. This may only work when there are no other bank borrowings. If an overdraft is in place consideration must be taken into account if notice is given to quit a factring facility as undoubtedly the bank will call in the overdraft facility.

If there are no other facilities complicating proceedings the new factoring company will replace the inflexible factoring company. AS they wll be the main debentyre holder they can appoint the administrator of your choice, fund the new co and collect in full the debtors of the old co. Seamless!

Perhaps not. Any hire purchase and finance lease deals must be taken into condsideration. It may be possible to rewrite any hire purchase or finance lease deals into the new co however not all finance companies will novate the agreements into the new. XL Business Finance has experince of helping customers replace such finance agreemnts.

Financing A Prepack

Monday, August 10th, 2009

A prepack is otherwise known as a phoenix. A business goes into administration and the directors purchase the assets off the administrator in a prearranged agreement. Not all finance companies will finance a prepack so it is important to get the best possible advice and have all the new finance facilities in place. A good corporate insolvency firm will provide experience and guidance as to the best way forward however when it comes to arranging the new finance facilities XL Business Finance can provide some help and experience of our own.

Depending on the factoring or invoice discounting company  it may be advisable to replace the existing factoring company with a more flexible funder. As it is the factoring company that more often than not appoint the administrator it is important that the factoring company appoints the administrator which will assist with the prepack. A bank appointed administrator may lead to events not going the correct way. It is also important to take into consideration any  other bank facilities which may be called in if a customer tries to change factoring companies. This will have an affect on personal guarantees. We have seen instances where procedure were carried out against the advice of the administrator, notice was given to the existing bank owned factoring company and the bank called in a substantial overdraft . As you can imagine things got a bit messy.

Payroll Finance

Thursday, August 6th, 2009

Word on the street is that payroll finance is going to make a comeback. Payroll finance was the short lived funding solution that provided the equivalent of  two months gross payroll on a revolving credit facility.

Until recently there were two funders in the market providing payroll finance. Wageroller was the first company to stop trading and more recently Smartflow went into administration.  Payroll finance albeit an expensive finance solution providing a working capital solution for businesses which maybe couldn’t obtain working capital via the more traditional funding facilities such as overdrafts, invoice discounting or factoring. The facility was ideal for businesses which worked on a contract basis such as construction companies. It was also very popular with private schools and also PLCs.   

The advantages to the customer of payroll funding was that the facility was totally unsecured and no personal guarantees were required. In addition the funders were providing a finance product which was deemed to be a service and as such it was classed as a trade creditor. This would have been of particular benefit to PLCs or businesses with onerous banking covenants because the facility would not have affected any banking facilities.

If the product does make a come back it will be interesting in what guise it will take  and what will be different that will make it succeed  where it did not do before.

Stocking Finance

Wednesday, August 5th, 2009

Enquiries regarding stocking finance seem to be on the up. As businesses find the high street funders more and more difficult to deal with, managing directors and finance directors are continually looking for innovative ways to help with cash flow. Stocking finance is a facility normally used in conjunction with a factoring or invoice discounting facility however in cirtain circumstances it can also be funded on a stand alone basis. Not all funders do proper stocking agreements and here’s why! 

Most factoring or invoice discounting companies will tell you they can fund stock. They will only do it in conjunction with a factoring or invoice discounting facility. In addition these finance companies will only fund stock as an overpayment up to amount equal to 100% of the debtor book. For example if  a business is obtaining prepayments at 80% and the debtor book is at £100k a typical factoring or invoice discounting facility will generate £80k against the value of the invoices. The maximum amount they will be able to generate from stock is therefore £20k being the difference between the total debtor book and the prepayment amount. More often than not stocking finance can not be obtained on a revolving credit basis and the intitial loan is normally clawed back over 12 months from when the advance was made. A factoring company will use this overpayment secured against the stock to win new business or help the business with a one off project.

There are however a few funders that provide a true revolving credit facility secure against stock.  These funders are few and far between but they doexist. Depending on the turnover, profitability and length of time the business has been trading will determine which funder we will recommended.

We also know of one funder that can potentially finance stock on a stand alone basis however as you can imagine the business would need to be well established and profitable. It may be possible to get 30p in the pound however as min facilities would be in the region of £300k a stock value of around £1m would be required.

VAT & PAYE Arrears?

Monday, August 3rd, 2009

It appears more and more businesses are falling into arrears with PAYE and VAT. Although the majority of customers we help appear to be busy in terms of a full order book and reasonable sales the biggest problem is with cash flow.

Their customers are telling them they can’t pay because their customers can’t pay and so on and so forth. The lucky businesses might be able to go to their bank and obtain an increase in overdraft facility, however we are seeing more and more cases where the bank has promised an increase in overdraft and failed to deliver. Factoring or invoice discounting may release much needed working capital and it is even possible to refinance existing equipment to release equity to provide cash injection.

So what happens if there are no further means to release cash? If there is a significant amount of PAYE and VAT arrears it might be possible to obtain an arrangement with the Inland Revenue and Customs. It can be argued that a corporate recovery specialist will do a better job and can act as an intermediary between your business and the relevant authorities. In extreme cases a creditor’s voluntary arrangement or an administration might be more beneficial to the business going forward.

XL Business Finance has a great deal of expertise in providing funding in the event of an administration. The most important aspect is to appoint a friendly factoring or invoice discounting company before the administration. Even if this means taking out your existing factoring or invoice discounting company. The new factoring company will then appoint a friendly administrator to ensure the directors of the business are in the best possible position to buy the business off the administrator.

These deals are known as pre packs and are growing in popularity. In the current economic climate there are obvious advantages and businesses are using the recession as an excuse to clear out the rot and give the business a new lease of life.

Confidential Factoring

Friday, July 31st, 2009

A relatively new product to the market Confidential Factoring provides the full benefits of a normalfactoring service together with confidentiality that so many businesses would prefer. There are only a few factoring companies providing this service and as such the facility represents only a small fraction of the whole cashflow market.

A facility will provide full credit control and debt collection. The finance company provide their client with their own unique telephone number and a dedicated credit controller. All telephone calls letters and communication are made in the name of the client so your customers are unaware that a ull factoring facility is being used. Any monies collected are paid into an account in the name of the customer but operated by the particular funder. This provides the cash control that the factoring companies require which under a standard invoice discounting facility they would not obtain.

This facility is suitable for businesses that would prefer invoice discounting which is confidential but unfortunately do not meet the criteria for an invoice discounting facility. Invoice discounting is deemed to be more risky than factoring because the finance companies do not have the same degree of control. In the current economic climate factoring and invoice discounting companies are less likely to grant invoice discounting facilities, especially if the business has been trading less than 3 years or is financially week.

Factoring Funding Limits Reduced?

Tuesday, July 28th, 2009

One of the most common  enquiries we are receiving via the internet is from customers that are having difficulty with their particular factoring or invoice discounting company reducing credit limits against their customers.

The headline prepayments might be 80% of unpaid invoices however the actual amount being funded might be as low as 50%. In our opinion this is one of the biggest problems in the current economic crisis. Most funders will be in the same boat however it might be worth shopping around as funding limits might be being reduced for other reasons.

There are plenty of finance companies running out of cash at the moment, others have over exposed themselves to a certain sector or have lent too much on invoice discounting and are trying to balance their portfolio.  The independent finance companies use external credit reference agencies to determine credit limits whereas the banks and high street lenders more often than not use their internal resources to determine credit limits.

Who will give the highest credit limits will depend on what experiences the finance companies and credit insurance companies  have with particular sectors, existing customers and market information. Normally the independents provide the highest limits however it is not unknown for the banks to provide higher limits. When choosing a factoring or invoice discounting company this is one of the factors which must be taken into consideration.

Bank Borrowing Too Expensive?

Monday, July 27th, 2009

So the Chancellor of the Exchequer has finally realised that the banks are charging more than they were 18 months ago. We have known for sometime it has become increasingly more difficult to obtain hire purchase and finance lease facilities as the banks and high street finance companies continue to restrict credit.

In my opinion they are caught between a rock and a hard stone. The economy is in a mess due to their irresponsible approach to lending in the boom times. Now that we are in a recession and they have been bailed out they are supposed to be helping the small businesses but they have used the money from the government to improve their balance sheet.

For every loan or overdraft they advance they are supposed to have a percentage of the advance in cash reserves. How much they put into reserves depends on the finance product in question. For example if an overdraft facility is granted a much higher percentage of the advance must be kept in reserve than a factoring or invoice discounting facility for example. That is why your bank manager will always try and push a business into a factoring or invoice discounting rather than an overdraft facility.

In addition to providing better security factoring or invoice discounting is less onerous on the banks reserve requirements and improves their overall balance sheet. The high street banks will tell you they are open for business but privately they are cherry picking their deals. Although the banks are charging a higher margin the overall costs in the majority of cases has significantly been reduced virtue of the fact the bank base rate is so low.

It must also be remembered that finance is a risk reward businesses and funders have the right to charge their customers appropriately. Although the banks have finally woken up to this fact if you are a business and you have been offered a facility from a high street bank it will probably be by far the cheapest finance on offer.

Matching Clients With Factors

Thursday, July 23rd, 2009

As a leading independent factoring and invoice discounting broker it is important we match the most appropriate factoring company with our potential clients. XL Business Finance use over twenty different finance companies that all have a different criteria in terms of the clients they are looking for. The main paramiters which we work to are.

Is factoring or invoice discounting required? As a rule of thumb some of the independents are better at factoring than the bank owned factoring companies. This is because factoring for the independents is their main core activity. They will go the extra mile in terms of chasing your customers. An independent specialising in factoring is more likely to chase and phone all your customers. Although cost must be important factoring is more of a value added service and as such you tend to get what you pay for.

Turnover. This very important because different factoring companies are comfortable in a certain turnover range. Some factoring companies specialise in the small business sector to provide that extra personal touch. XL Business Finance can advise which factoring company will best suit your particular needs

Location. Different factoring companies have a strong presence in different geographical locations. XL Business Finance can advise as to which factoring companies are best in your particular area.

Market Sector. Different factoring companies can have a particular niche in certain market segments. Certain factoring companies are very good at haulage or printing for example. It all depends on their particular experiences of the different market sectors.

Finally Product. Some factoring companies can provide stocking finance in addition to the debtor finance, others are good at international trade. Some are good are good at contractual debt.

XL Business Finance can save you the time and expense of locating the most appropriate funder

 
 
 

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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