There are some very simple reasons as to why a bank would withdraw an overdraft facility. Firstly a bank will feel that they have more control over an invoice discounting or factoring facility. If a business has been in difficulties there is a trend to reduce overdrafts or even withdraw them completely. Secondly one of the criticism that have been pointed towardsthe banks in the aftermath of the collapse in the banking system is that the banks are under capitalised. This means that the banks were supposed to have a certain amount of cash reserves, which they didn’t. Indeed the propping up of the banking sector provided the banks with more cash however most of this cash has been used to recapitalise their balance sheets. Interestingly if a bank lends money on an overdraft they are supposed to have a greater amount of cash reserves than if they had lent the same amount of money against a factoring or invoice discounting facility.
One of the biggest enquiries we get is from businesses wishing to protect their working capital in the event in a reduction in overdraft. Whilst banks offer such facilities I find it very strange that a business should even contemplate an invoice finance facility with the same bank which is restricting their working capital facilities. We genuinely believe that for most financial products offered by the banks their is a far superior product offered by an independent specialist provider. Although there are so many independent factoring company, at XL Business Finance we use our expertise and experience to recommend two or maybe three funders that will best suit your requirements. As the going says one mans poison is another mans meat. It is the same with finance companies. We will take into consideration your geographic location, length of time the business has been trading, turnover , size and quality of debtor book, profitability and whether their is any previous or historic adverse credit information.
Tags: Factoring, invoice discounting
