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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.

How to choose an invoice financing company

Thursday, November 26th, 2009

There are many factors which you should take into consideration when choosing an invoice financing company. probably the most important two are the geographical location of the finance company and does  that company have experience in your particular industry.

XL Business Finance advises many clients as to the best choice of finance company and we are continually amazed that the lengths some funders go to to try and win business hundreds and hundreds of miles from their head office. We believe that there is a good finance company no more than one hours drive from any location within most major cities in the UK. What is the point of choosing a finance company whose head office is based in London if you operate out of Manchester or Liverpool. Surely if you have any issues you want to jump in a car and be having a face to face chat to someone within the hour.

Secondly it is important that your particular finance company has the expertise in your particular industry or sector. You will tend to find areas of specialism in recruitment, haulage, printing, engineering, construction and export factoring and trade finance. It is worth asking for a few references.

Why use an Invoice financing broker

Thursday, November 19th, 2009

I read on a blog recently asking what a factoring or invoice financing finance broker does for his money. It was suggested that a broker should approach the most  number of finance companies possible and get the cheapest quote for their customer. I couldn’t disagree more. Any deal that gets touted around the market and effectively becomes a beauty parade of factoring companies can do a business more harm than good. The problem is that if a finance company is aware that they are up against three or more finance companies they don’t take the deal seriously. We have seen business recently that have seen six or seven finance companies.

At XL Business Finance we will talk to our customers and very quickly we can narrow the most appropriate finance company to two or maybe three. Different invoice  finance  companies all have different ares of expertise. WE understand the factoring and invoice discounting market and we understand which finance company will be best suited for your particular requirements. Some finance companies are good in construction which has allot of contractual debt. Other finance companies are good at international trade and some are better than others at credit control.  Also  there are a number of regionalized companies that a strong presence in certain geographical areas. Why would you use  an invoice finance company based in London if your business is based in Manchester or visa versa.

So when we have narrowed it down to the two or three most appropriate finance com[pany w will set up meetings on your behalf. We than say then it comes down to personal choice and you will more often choose  the company that you feel you can develop a rapport with the members of staff. In addition this costs you nothing. Our service is totally free. We do however take a introductory commission for the finance company.  All factoring and invoice discounting companies will pay commissions so rest assured our advice will be impartial and we wont send you a bill!!!

Why a business should use invoice financing

Saturday, November 14th, 2009

Invoice Financing can take place in many forms and variations however in a nut shell it gives a business the ability to release cash against unpaid invoice. Historically it was used as a lend of  last resort, however over the last few years the market has matured and the stigma of using a cash flow facility seems just about to have disappeared. In fact we can give you many reasons as to why invoice discounting or factoring  is far better than many traditional forms of bank finance.

Up until the last few years many businesses would use their overdraft to fund their working capital requirements. However as credit terms have been continually stretched many business have found it difficult to operate within agreed limits. Traditionally an overdraft facility has been set against the trading performance of the business and the amount obtainable will more often than not have been restricted by the ability of the business to provide tangible security in the form of bricks and mortar

Invoice financing is totally secured against the unpaid invoices which are assigned to the particular finance company.  Unless an overpayment is required no other security is required. The great advantage is that the facility will grow with the business. More importantly providing the business is trading within the terms of the agreement there is no risk of the facility being withdrawn. This is not the case with a traditional bank overdraft which is payable on demand. We have seen many instances recently whereby   the banks have withdrawn the facilities with absolutely no notice resulting in very difficult cash flow problems for the business. our advice is always go for a cash flow facility rather than the overdraft.

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.

 
 
 

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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