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Archive for April, 2010

Invoice financing contractual debt

Friday, April 2nd, 2010

Approach most invoice financing companies for a factoring and invoice discounting facility and as soon as they realise there is an element of contractual debt they run a mile. The good news is that there are one or two finance companies that specialise in financing contractual finance.

They are two completely different finance companies. One is a bank owned invoice financing company and the other is an independent based invoice discounting company. ie they are not bank owned. Compare any of the two quotes and you will probably find the bank owned invoice discounting company is slightly cheaper. However in our experience the bank owned finance company may not give the best service. Being a bank you will probably find they have more inexperienced staff. Not say they all are but it will be pot luck as to the level of service you obtain. The bank will probably quote a higher pre payment but as we know with any part of contractrual invoicing what you invoice isn’t necessarily what you get paid. This is where the problems start. A larger financial institution will have greater difficult reconciling payments and you end up with disallowed invoices and possibly less cash in the bank

Whilst no one funder is perfect the independent will understand that payments coming in through the door do not always match up but they have a far greater experience in reconciling the accounts. It might also be that whilst the independent quotes a lower prepayment you end up with far more cash in the bank. The independent will base their prepayment on advice from their in house quantitative surveyors and whilst a  lower prepayment might not be ideal it will also protect the directors by not exposing themselves too much from a personal point of view.

Invoice Discounting Definition

Thursday, April 1st, 2010

Invoice discounting can simply be described as the provision of finance against unpaid invoices. The finance provider will take security over the book debts of the business by registering a debenture over the business. Traditionally the invoice discounting company will release between 75-85% of unpaid invoices of up to a 90 day period. Invoice discounting is usually confidential in that your customers are unaware that you are discounting your invoices. This is different from factoring whereby your customers are aware that you are raising cash against your invoices.

The criteria for obtaining an invoice discounting facility is higher than a  factoring facility and the decision of the invoice discounting facility will be influenced by

1.  the business should be able to demonstrate that they are trading profitably and that there is a reasonable net worth. The last set of audited accounts and most recent management accounts will be required to evidence a profitable well run business.

2. the lender will pay particular attention to the quality and spread of your customers. Ideally no one customer should account for more than 20% of turnover. There are a number of invoice discounting companies providing single debtor invoice discounting however it depends on the risk of that particular customer and whether credit insurance is available.

3. you must be able to evidence that a good credit control system is in place and that the turnround of issuing an invoice to receiving  payment is done in a timely manner.

4. In addition a good sales ledger must be in place, ideally be computerised and adequately kept up to date.

As we have previously mentioned not all invoice discounting companies are the same. Every lender has a sweet spot. A good invoice discounting broker will be able to recognise which finance company will best suit your particular requirements. The introduction will be based on the length of time the business has been trading profitability, spread of and quality of the debtor book and geographic location.


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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