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Archive for February, 2010

Switching Invoice discounting company

Thursday, February 25th, 2010

Contrary to popular belief switching factoring or invoice discounting companies is relatively straight forward.  However it is more difficult if the exiting funder doesn’t want want you to leave.  Under extreme circumstances the existing discounting company will have notice periods built into the terms of the deal which  they will require paying in full. As notice periods could be anything from a  month to six months a chunk of minimum payments can soon add up. However if the relationship has totally broken down the existing provider may be willing t0 reduce their fees and the new provider may be willing to contribute to the fees to ease the pain so to speak. In addition a minimum contract from one to three years is not unusual and this must also be taken into consideration.

How you will be dealt with depends on the existing provider. Many of the banks prefer to keep a very clean and straight forward portfolio and if you don’t meet the banks strict criteria they will be more likely to let you go without a fuss. They dont want to be seen hindering a business especially if it is one of our government owned institutions. One of the biggest enquiries at the moment is for businesses wanting to switch from bank owned factoring and invoice discounting comapnies to more flexible providers.

Once all parties have agreed to the move there is a code of conduct that exists between the two funders. The new finance company will set up their  own trust accounts and the existing funder will sweep any money coming to the old accounts and pay it across until your customers get to grips with the change of banking arrangements. Hopefully the small amount of pain will result in new found financial freedom and flexibility. So there!

Bank restricting my invoice discounting facility

Wednesday, February 24th, 2010

Ok, I know I keep harping on about the banks and potentially having too many eggs in one basket however we have recently come across a situation which shows the banks for what they truly are.

Approx 12 months we were approached by a engineering company with a turnover of approx £12m to help source a competitive invoice discounting facility. They were banking with a well known high street bank that shall also remain nameless. A commercial mortgage was in place with the same bank for approx £500k against a fairly recent valuation of £1.1m so plenty of security here thank you very much. We recommended a totally independent invoice discounting company so the bank wouldn’t have too much control. The cost via the independent would be appox £30k of service fee for running the facility compared with what the bank who were offering the facility at a loss leading £12k per annum. From a cost point of view a no brainer however if trading conditions were to take a turn for the worse this could leave the customer exposed to the mercy of the bank.

Now then 12 months down the line and because one of the group businesses have struggled the customer has been placed with the banks specialist care unit and as such is facing massively increased costs.

The service fee has been increased by 1%,  the interest rate has been increased by 0.75% and a monthly management fee of £1200 per month for monitoring the business has been applied. In addition a one of fee of £10k is being charged to verify the management information and cash flow projections. All this adds up to a whopping additional £50k per annum. Ouch!

Although this business has a £100k overdraft facility they are currently running stock at £2.5m. Within in two weeks we expect to have the customer uplifted from the bank with a new invoice finance company complete with a revolving stocking finance loan providing the business with an additional £200k working capital even after paying off the bank overdraft!

Invoice Finance helping ease restricted credit terms

Wednesday, February 24th, 2010

One of the most common difficulties currently facing many businesses is that creditors are trying to shorten their credit terms. In extreme circumstances we are seeing many credit terms being completely removed. Suppliers are wary of providing credit on the basis that they probably have had their fingers burnt due to the vast number of businesses going into administration. This doesn’t help the business which are left particularly when it appears they themselves are struggling to get cash out of their own customers. Banks are being very difficult when it comes to increasing overdraft limits  therefore in order to obtain sufficient working capital many business are turning to more flexible forms of invoice finance. Additional working capital is also being obtained by refinancing existing capital equipment.

Once upon a time invoice finance such as factoring and invoice discounting was deemed to be a lend of last resort. Refinancing existing plant and machinery was considered unnecessary and expensive compared with what the banks could provide. How times have changed. Both these specialist areas of finance can provide a life line to many struggling businesses or indeed any business which isn’t getting enough working capital from their incumbent bankers.

XL Business Finance has been providing innovative finance solutions for over 10 years. We are one of the leading independent experts in providing refinancing options against existing plant and machinery. We also have a vast knowledge and experience of the many factoring and invoice discounting companies. No matter how difficult your situation or indeed how well your business is trading we can certainly add value to your business when it comes to obtaining the right funding solution for your business. Any search on the world wide web will reveal hundreds of different factoring and invoice discounting companies. We will use our knowledge and experience to provide only two or three of the most appropriate finance providers

Factoring with a poor trading performance

Monday, February 22nd, 2010

Many business believe that they are not eligible for an invoice finance product because they have a poor trading history. This will almost certainly be the case if you require an invoice discounting facility. This might also be true if you approach a high street bank for either invoice discounting or factoring. The good news  is that even if your bank has knocked you back for a factoring facility there are many independent factoring companies specialising in this area and they are able to take a more flexible approach to helping a business.

The problem with the banks is that factoring and invoice discounting is not really what they are about or it is not a core product. In our opinion most banks are a jack of all trades but a master of none. An independent grows its business on the back of the smaller and more challenging deal. It is willing to go the extra mile to assist a business. It understands that the sucess of running a factoring factoringcan be the difference between a business succeeding or failing. It also will take into consideration the quality of your debtor book which if it is of good quality it will certainly assist in obtaining a factoring facility.

Remember there are so many factoring companies to choose from and as such it can be a minefield when it comes to choosing the best provider for your business. A good independent broker will be able to narrow the oice of finance companies down to the best two or three saving you time , effort and money. WHICH ONE IS BEST FOR YOUR BUSINESS WILL DEPEND ON YOUR LOCATION, TURNOVER, QUALITY AND QUANTITY OF YOUR DEBTOR BOOK AND THE LEVEL OF ANY PROBLEMSWITHIN YOUR BUSINESS.

Small Business Invoice Financing

Friday, February 19th, 2010

Invoice financing provides cash against your unpaid invoices. Most factoring and invoice discounting companies will release up to 95% of your newly created invoices immediately with the remaining 15% being paid when your customer settles the invoice in full. For small businesses that might find it difficult to obtain a bank overdraft invoice financing can provide much needed working capital. As mentioned in previous blogs not all finance providers are the same and this is even more relevant when it comes to a small business choosing the right invoice financing company for their business. XL Business Finance has been helping small businesses for over 10 years obtain the most appropriate and flexible financing solutions.

Factoring can be obtained with a turnover of not much less than £100k per year. There are a number of small businesses which specialise in providing factoring services to the smaller business so it is always worth approaching one of these companies. Some of the larger independents are also very approachable and provide a quality service. With factoring our recommendation would be to choose a factoring company which is local to your business and one that actually specialises in factoring. Factoring is very much about adding value because not only does it provide cash against your unpaid invoices factoring also provides credit control leaving the owner with time to do other things. For this reason we do not tend to recommend the banks for factoring as it is more of an add on product than anything else.

For a small business it is more difficult to obtain a confidential invoice discounting facility. Traditionally invoice discounting has only been offered to business with turnover of £1.0m plus. However there are one or two invoice financing providers that will prefer to offer invoice discounting.  It all depends on how long the business has been trading, the previous track record and the systems and controls the business has inplace for credit control.

Invoice Finance in the construction industry

Thursday, February 18th, 2010

As far as we are aware there are only two finance companies providing invoice finance to the construction industry. This is because construction tends to be very contractual and the majority of invoice discounting and factoring companies don’t understand it.

One of the providers is a high street bank and depending on the knowledge of your point of contact  we have had mixed reports as to their ability to provide a decent service. The other provider is one of the larger independents and their level of service is more consistent.

The problem with contractual invoicing is that that amount and value of work undertaken at a particular point can be very subjective. Most invoice finance companies don’t want to get involved with disputes over work undertaken in relation to larger projects.  As a rule the high street bank will only advance against certification whereas the independent will provide funding on application of the invoice. Due to the nature of the debt prepayments to be at a lower level than normal factoring or invoice discounting. Traditionally invoice finance will release up to 85% of your unpaid invoices however with these contractual deals it may be allot lower.

If your business is quite large than as a rule of thumb we would recommend the independent because they appear to have the consistency in understanding ow the invoice is structured. They also have their QS working for them to verify  the invoices if need be. The bank may provide a higher headline prepayment however in reality they are not as good as collating stage payments and as such they are more likely to disallow certain invoices and payments.

On the other hand if your business is relatively small the bank provider takes a view on their overall portfolio and as such if they fell they have a good mix of customers they may not look too closely as to what and ow you are invoicing and such you may end with more cash.

Changing Invoice Factoring company

Wednesday, February 17th, 2010

There are many reasons as to why a business would want to change their invoice factoring company. The main reason is through a lack of flexibility when it comes to credit limits against individual customers. It may also be that the factoring company that you are using restricts the overall funding limit. It may also be that they are no good at collecting your debt. Whatever your gripe it is not unusual for a business to want to change a factoring company and hopefully this blog will provide some information as to how to do it.

First things first, most finance companies will sign up a business on factoring for at least a 12 month contract and in some instances we have seen two or even three year contracts. In addition there will be a 3 month notice period. However some of the banks offer one month rolling contracts to customers unsure if they require the service or not. Anyone on a longer contract and feels that the relationship has totally broken down between themselves and the funder may be allowed to leave. This is unusual as most factoring companies don’t allow customers to leave that easily. It may also be possible to do a deal with the exiting factoring ompany and in addition the new factoring company may contribute to the costs of the move. The cost of moving needs to be compared with the amount of additional cash a move could release so you can decide whether a move is worth it  or not.

As we have mentioned with previous blogs not all factoring companies can be all things to all men. Bank owned factoring companies operate completely differently to independently owned factoring companies. We tend to find that with factoring that requires that the funder provides credit control the independents are superior to collecting the debt.

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.

Factoring Finance explained

Monday, February 15th, 2010

Factoring Finance is the means of obtaining cash against outstanding or unpaid invoices. Most factoring and invoice discounting companies  will release up to 85% of unpaid invoices. On payment of the invoice the finance company will pay you the remaining 15% minus a small service fee and any interest due.  The funding is usually provided for a maximum of 90 days however in some circumstances there are one or two finance companies that will provide funding up to 120 days. The factoring company will take a fixed and floating charge over your book debt and when you raise an invoice to your customer you request that the proceeds are paid direct to the factoring company and you provide their bank details. Factoring will also provide credit control whereby the finance company will chase your invoices on your behalf.

Once upon a time there was a stigma surrounding factoring and invoice discounting however it is fast becoming the preferred means to provide working capital and is recommended by many professional advisors as an alternative to a bank overdraft. The problem with a bank overdraft is that the level of the overdraft facility can be restricted by the length of time your business has been trading, its profitability and the amount of security available. Factoring will grow with your business and will provide you with a lifetime of working capital.

Beware not all invoice factoring companies are the same. Factoring is very much about adding value to your business. Not only does it provide the necessary cash flow but the credit control side is just as important. There is no point going with a really cheap provider if they are useless at collecting your cash. Thew banks only tend to phone the top one or two companies whereas the independents tend to specialise in this product and as such do a proper job when it comes to credit control.

Business Finance without using a bank

Sunday, February 14th, 2010

It goes without saying that the high street banks have a captive audience when it comes to providing business finance. Most businesses will turn to their business banker in times of need. Whether it is a bank overdraft commercial mortgage , equipment finance or invoice finance your friendly manager will be only too please to help. Remember though when it comes to the different forms of business finance for every high street bank offering finance their is an alternative independent company offering funding.

Once upon a time it was possible to get a package deal with the bank. They might do one product as a loss leader and as such the overall funding was priced very competitively. The problem of having all ones eggs in one basket has become evident over the last year or so. Banks have been found to wanting at times and it is very true that they are great at giving their customers umbrellas but as soon as it starts raining they want them back.

In our opinion the independent business finance companies provide a product that is very competitively priced however the levels of service and flexibility can far exceed those of the banks. This is very true when it comes to factoring and invoice discounting. Whilst for certain types of business there are certain banks that we would recommend as a whole independent provide a far more approachable and flexible service.

XL Business Finance has been helping its clients for over 10 years to obtain the most appropriate invoice factoring and invoice financing facilities. The cheapest is not always the best and a by undertaking a brief review of your business we can provide two or three funders ( probably ones you may not have heard of before) that will knock the socks of the banks in providing the right level of service and flexible funding that your business requires.


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