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Archive for July, 2009

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.

New Business Financing

Wednesday, July 29th, 2009

It appears that there are still one or two individuals looking for new business financing.  I suppose this is not unexpected given the number of people being made redundant in the current climate.

Any new start business approaching their bank will need to produce business plans, cash flow forecasts and inside leg measurements. Their friendly business relationship manager fresh from university will suggest that they apply for EFG funding promise the earth , collect a load of information string the customer along for a couple of months and then after much persuading he will find out that they are unable to do the deal. No surprise there then!

AT XL Business Finance we take a more straight forward approach. We don’t necessarily require business plans and we can very quickly determine what level of funding will be obtainable. With the right information we can normally do his within a couple of days. In simple terms there are a number of ways a new business can be funded. If capital equipment plant and machinery is required  asset finance in the current climate can be obtained at an amount equivalent to the forced sale value. Any shortfall can be topped up from personal means or by taking additional security such a second charge over a personal property. Banks will not automatically lend to a new business just because a second charge is available. The rest of the plan must tick all the right boxes A task in itself in the current financial predicament.

To assist with cashflow a factoring facility can be put in place. This will release 80% of unpaid invoices immediately providing much needed cashflow. It is amazing the number of accountants that don’t recommend  factoring or invoice discounting thinking it is expensive and still product of last resort. Factoring charges start at a few hundred pounds a month and are a valuable tool for any new business.

Raising Finance Against Contracts

Wednesday, July 29th, 2009

This is one of the least known about finance facilities in the market place. It is a very simple form of funding but is often overlooked when businesses consider their financing options. Although it is a form of cashflow funding it is completely different from factoring and invoice discounting which provides cash against unpaid invoices for periods of up to 90 days.

Contract Finance provides a lump of cash up front against the future value of guaranteed contracts. For example a business may have a guaranteed contract over a five year period generating £10k of income per month.  The total value of the contract is therefore worth £500k

It is possible to provide funding of up to £500k less a charge for borrowing the money over a five year period. The finance company will  take a legal charge over the contract and other legal documentation to make their security water tight. There are few funders in the market but still enough to provide funding against a large number of scenarios.

A minimum deal size is £50k and potentially no upper limit. The strongerthe covenant of contract the greater the percentage advance. This facility works very well where the contract is with a government body such as an NHS Trust. Each particular deal will be assessed on it own merits and if a business has any guaranteed future value it is always worth a chat.

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.

Financing Imported Machinery Continued

Tuesday, July 28th, 2009

OK , so we have discussed the options for making payment to the supplier but what is the best way to pay for the machinery and what are the best finance options?

The majority of foreign suppliers will either invoice in euros or US dollars. The finance company will book the foreign currency to provide an exact exchange rate and use the sterling equivalent on your documentation.

At this point it is worth mentioning that finance companies are not importers and it is either the supplier, their UK agent or the customer to make sure the necessary arrangements in terms of VAT numbers, import duties etc are made with the appropriate import authorities.

Although the  foreign suppliers invoice will have NO VAT as soon as a UK finance company raises either a hire purchase or finance lease document VAT becomes payable. If hire purchase is required all the VAT becomes payable in advance to the finance company. AS with any finance lease facility Vat is only paid on the deposit amount and the remainder of the VAT is paid on the monthly repayments.

However with the correct documentation and structure it is possible to provide a Vat neutral hire purchase deal so no physical payment is actually made. This only works where foreign suppliers and is structured as follows.

Instead of invoicing the finance company, the foreign supplier raises an invoice direct to the customer in euros or whatever the foreign currency maybe. The customer raises an invoice to the finance company for the sterling equivalent and because this is a UK invoice VAT must be applied. The customer will request that the proceeds of the invoice will be paid direct to the  supplier.

The finance company prepare their hire purchase documents and the Vat on the HP doc cancels out the Vat on the customers invoice. By doing the deal in this way the customer in affect becomes the UK agent and is normal practice for a standard agency agreement to entered into before the transaction commences.

Financing Imported Machinery

Monday, July 27th, 2009

Financing imported machinery can be quite a complex issue. Often the supplier will requiring paying up front however the finance company is loathed to release payment before the equipment is delivered to the customers premises.

More often than not a common sense approach can be reached whereby an amount equal to deposit is paid across to the supplier to provide some commitment. Providing the supplier is provided with some form of evidence that a hire purchase or finance lease facility has been agreed this is usually enough to get the machinery on its way. Most UK finance companies will release payment tothe supplier on evidence that the machinery is on UK soil .

To protect the customer a small retention of 10-20% of the net cost of the godds can be withheld until satisfactory installation. If the supplier is unwilling to release the machinery or equipment prior to shipment before receiving payment in full it was once possible for a funder to provide a  pre facility loan or overdraft.

For obvious reasons the customer would need to be pretty strong in terms of their financial standing. These facilities were more often than not offered  by bank owned finance companies however in the current era of restricted credit most of these facilities have been withdrawn. However not to say a bank might not provide an overdraft facility for some of their better customers.

If none of these are an option  it may be possible to arrange a letter of credit.  This is basically  a bank backed guarantee stipulating that providing certain conditions are fulfilled payment to the supplier is guaranteed. XL Business Finance has experience and expertise at negotiating with foreign supppliers and ensuring the correct wording and documentation is provided to enable the quick release of funds and at the same time providing protection for the customer and comfort the supplier.

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

Use existing assets to secure funding for new capital expenditure

Wednesday, July 22nd, 2009

Whilst finance companies and banks continue to remain ultra cautious in the current economic climate we are constantly looking for innovative finance solutions to help businesses with their new and used capital expenditure programmes. Unless a business is very profitable and has a very strong balance sheet it is remaining increasingly difficult to obtain funding from the high street finance companies. It seems they are looking for reasons to decline deals as opposed to looking for reasons to agree deals. Who can really blame them when they are suffering unprecedented bad debts and they are being inundated with more proposals than they can actually cope with.

One of the ways XL Business Finance has been helping customers with their capital expenditure plans is by looking at existing equipment and machinery to provide additional security. If the high street funders are not playing ball there are a number of funders that will look to ways of doing deals but they need to be reasonably asset secure. Therefore we can look to take a charge over unencumbered kit to provide additional security for the same funder or it may even be possible to refinance existing assets or machinery with one funder to provide an acceptable deposit for another funder. These structured deals obviously work well where there is substantial kit with good residual values. Therefore printing engineering, packaging, manufacturing businesses all work extremely well.

Refusal to release assets from all assets debenture

Tuesday, July 21st, 2009

XL Business Finance was recently approached to look at a substantial refinancing deal for a large outside catering business. The equipment to be refinanced was mainly commercial vehicles converted into specialist catering units. Therefore the assets were not every finance company’s cup of tea.

However not wishing to give up we secured a finance facility with one of our asset based finance companies. You might think job done but oh no. As part of the documentation process a debenture waiver must be obtained from any funders holding a debenture. This would normally be the bank if there is an overdraft or loan in place or it can be from their existing invoice discounting company. Or it can be both.

Any funder having an all assets debenture has an automatic legal title over any assets in the business so the asset refinancing company must get the equipment released from the debenture via a debenture waiver. More often than not it is the banks which can cause issues but imagine our surprise when the non bank owned invoice discounting company would not release the assts from the debenture.

They refused not because the kit was needed as part of their security but because they were reluctant from a dubious legal point of view. This particular invoice discounting company must have racked a large legal bill of several thousand pounds not to mention the legal costs from the customer’s point of view. In our opinion it was totally unnecessary.

The result was the refinance was delayed by a number of months and we are now in the process of switching the customer to a new and more flexible invoice discounting company. Any refinance of existing equipment should be straight forward at documentation stage and if you have had any similar problems we are here to help.


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