We are still seeing so many businesses struggling for cash flow with inadequate working capital facilities and replacing their bank overdrafts with invoice finance. Bank overdrafts are not designed to grow as a business expands and believe it or not there are many businesses out there that seemed to have turned the corner. This seems very much to be the case in the manufacturing and engineering sector which seems to be very very buoyant at the moment. Invoice finance by either factoring or invoice discounting can release cash against 85% of a businesses unpaid invoices. In many instances this can create cash far in excess of any bank overdraft facility is capable of doing.
Archive for the ‘Invoice Finance’ Category
Replacing an overdraft with invoice finance
Saturday, April 2nd, 2011Invoice Finance and EFG Funding
Wednesday, March 16th, 2011It is now possible to get Enterprise Finance Guarantee Funding ( EFG) on the back of invoice finance facilities. Additional funding over and above the traditional 80/85% prepayment may be available.
This news may be a welcome relief to businesses that have approached their own high street banks for EFG fundin,g but for one reason or another have been refused. It must be remembered that as far as banks are concerned the availability of a government guarantee doesn’t make a bad deal good. For a business to be available for EFG funding via a high street bank, they must meet that banks normal lending criteria and if there is a lack of security in the deal then that is where the EFG funding kicks in.
If you don’t meet the banks’ normal lending criteria then it won’t get past first base. The problem is that it appears that many commercial high street bank managers don’t know what they can and can’t do and rather than saying no, they string the customer along on a merry dance.
There are currently two invoice finance companies offering EFG funding on the back of invoice finance. One provider will provide an overpayment to a maximim of 100% of the outstanding debtor book whilst the other will provide EFG funding equivalent to any director’s loans that there might be in the business.
Obviously these companies use slightly different criteria and it doesn’t take a rocket scientist to work out which invoice finance company might be best for you.
£4.0m invoice discounting facility for export business
Tuesday, February 22nd, 2011As an credible independent invoice finance broker we were recently approached by a business having trouble obtaining funding from their high street bank. The business mainly exported goods to Europe and Africa had access to a £3.0m invoice discounting facility. As most of the African debt could be credit insured it had always been possible to obtain funding against these outstanding invoices. That was until the bank had a change of policy.
At a review meting the bank announced that they would no longer be able to finance the African invoices. A change of policy apparently. The customer during 15 years of trading had never had a bad debt into Africa and in any case most of the debtors could be credit insured. This obviously had a dramatic affect on the businesses cash flow and as such the £250k in case of need overdraft facility quickly reached its limit.
In our opinion a switch from one high street bank to another would certainly be out of the frying pan and into the fire. We therefore introduced our customer to a couple of lessor known invoice discounting ccompanies that specialise in bigger deals. They kind of start off where the high street banks start getting uncomfortable. They tend to be owned by foreign banks however unlike invoice discounting companies attached to high street banks they have their own autonomy. In addition because they are foreign owned they tend to be able to deal with world wide markets.
It is always worth getting an alternative to a high street bank and a good independent finance broker will undoubtedly be able to point you in the right direction
Trade finance explained
Wednesday, February 16th, 2011Trade finance provides the ability for a business to purchase wholesale goods on credit awaiting sale of the goods and therefore payment from the end user. There are several types of trade finance and this article tries to explain the differences which should help you decide which product or type of business is best for your business.
Firstly traditional high street banks provide trade finance based on the strength and performance of the business. We call this balance sheet lending and is based purely on the profitability and track record of your business It is more often than not nothing to do with the value of the goods you are purchasing and the security that they offer.
Secondly certain factoring and invoice discounting companies provide trade finance facilities on the back of an invoice finance facility however the goods in this instance must be pre sold. For example if you were inmporting Plasma TVs from China and you had an order from Costco for example it might be possible to obtain a complete funding solution. The factoring company will provide you with an import facility to purchase the TVs. On delivery of the TVs to cost and on raising an invoice a factoring facility will provide a further funding facility until Costco pay within the terms of the invoice. As factoring will only fund 80% of the end invoice the mark up on the imported goods must be at least 20% otherwise the invoice finance facility will not repay the trade facility.
Machinery Refinancing
Monday, January 31st, 2011During January our biggest type of of enquiry was for businesses looking for machinery refinance. I suppose that you can look at this from two angles. A business may need to refinance because they are struggling, running out of cash and need to find some funds from somewhere to keep the business afloat. Or they need to refinance machinery because they are doing well, need some additional working capital because the banks are unwilling or unable to help
Most business owners will say it is the latter however in a small number of cases it may genuinely be because a business is struggling. Any asset based finance company will always be willing to lend against the value of an asset providing they are doing so for a positive reason. On the other hand if a business is struggling they may insist that you take advice from a specialist accountant or insolvency practitioner.
It maybe that it it is better to fund a business following a pre packed administration particularly if there is a lot of creditor pressure and crown arrears. Many business owners think that it is not possible to obtain funding following a pre packed administration. In reality, asset based lenders would probably prefer to fund such a arrangement because the new business going forward will be leaner and meaner. It is true that a bank may not wish to assist with the funding however in reality this should not cause any major problem going forward. An independent invoice finance company will be happy to provide a factoring facility and as such there should be no need of a bank except for clearing cheques.
Is Invoice Discounting Better than a Bank Overdraft?
Tuesday, January 25th, 2011We think so but then again why wouldn’t we ! As an independent business finance specialist we are firm believers that borrowings should be spread across as many financial institutions as possible. We also believe that any form of invoice discounting is better than a bank overdraft.
The problem with a bank overdraft means that you are at the beck and call of the bank. An overdraft is repayable on demand and at the first sign of trouble it can be withdrawn at a moments notice. No one ever thinks this will happen but believe you me, we have seen it happen and the consequences are not pretty. Another problem with bank overdrafts is that the amount you can borrow is determined by the strength of your balance sheet or the level of security available. Bank overdrafts of any significant amount are normally secured against bricks and mortar.
Invoice discounting couldn’t be different. A facility is secured against your unpaid invoices and within reason as your business expands so does the size of the facility available. Providing you are looking for standard trading terms borrowings of 80% of debtor book are the norm without the need to provide additional security.
Directors warranties are the normal comfort obtained from the invoice discounting company which provides an indemnity against any fraudulent activity. Fair enough one thinks
XL Business Finance has been helping the SME market for over 10 years sourcing the right kind of funding for a business’s particular needs. Give us a call today to see how we can help you
Who Is doing Enterprise Finance Guarantee Funding ( EFG ) ?
Wednesday, November 17th, 2010The banks are supposed to be helping small businesses obtain difficult funding in these difficult times and one way is via the EFG or Enterprise Finance Guarantee. Whilst the EFG does not guarantee success of funding via the banks there are one or two viable alternatives via the invoice finance companies.
The problem with the bank based scheme is that a proposal for funding should meet all the banks normal lending criteria. If you have a proposition that they want to do but the only thing that is stopping them doing it is a lack of security then this is where the EFG scheme gives them the security to do the deal. If for some reason they don’t want to do the deal because your business hasn’t been trading long enough or the financials are not strong enough then it wont get passed first base. EFG funding does not make a bad deal good.
An alternative to bank based EFG loans could be funding via invoice finance companies. One funder provides EFG funding on the back of a factoring or invoice discounting company match funding any directors loans but up to a maximum of fifty percent of the debtor book. Another invoice finance company provides EFG funding to give a business 100% of its debtor book.
Invoice finance companies tend to be a little more flexible than the banks therefore if you have drawn a few blanks then it is worth giving them a call. We will gladly point you in the right direction.
How do I obtain Export Finance?
Tuesday, November 16th, 2010Export finance is very simply funding your foreign invoices via way of an invoice discounting or factoring facility. This is a very specialist market in the invoice finance sector and as such only a few finance providers can offer a proper facility.
A number of these specialist invoice finance companies have a network of offices and associations spread around the world offering multi currency facilities and credit control. Obviously it is easier to obtain funding in developed countries however it may be possible to obtain funding in less developed parts of the world so long as your customer has a credit rating. As with any factoring or invoice discounting product different companies are better in handling different sectors than others. Just because you go to your bank and they inform you that it is not possible to factor foreign invoices it doesn’t mean it cannot be done via a specialist lesser known finance company.
A good independent finance broker will be able to introduce you to the most appropriate funders. Again it is important to be talking o two or possibly three finance companies so it doesn’t become a one horse race. However if you invite every tom dick and Harry of a finance company non of them will take you seriously an in our experience you end up getting a worse deal.
XL Business Finance has been helping business for over 10 years find the most appropriate funding partner. Give us a call today to see how we can help your business. Go on you know you want to!
Cash Flow Loans Explained
Monday, November 1st, 2010A traditional cash flow loan from a banks point of view would be based on the turnover and profitability of a business. Before the recession cash flow loans were a prelevent form of bank lending. They were often used in management buy outs to raise cash to buy the businesses along with other purposes. It was not out of the question to raise funds many times greater than the actual value of the tangible assets of the business.
During a buoyant economy this kind of lending is absolutely fine however as soon as things slow down, as they did recently, serviceability may become an issue and as such the banks find themselves with large loans to businesses with very little or no security. It is no wonder the banks have had such a slating recently for lending on this basis. The recession hits and the banks no longer lend on this basis and are accused of not lending any money. It appears to me that they dammed if they do and dammed if the don’t.
The alternative to cash flow lending is asset based lending whereby a bank or financial institution lend against the asset of the business. These are predominantly invoice finance companies that will lend up to 90% of a businesses debtor book, provide a commercial mortgage, lend approx 50% against any unencumbered machinery and also have the ability to lend against stock and in certain circumstances provide international trade finance.
Whilst a bank has the ability to provide asset based lending they don’t tend to have the expertise as some of the specialist lenders and as such it is often worthwhile speaking to an independent business finance specialist to see what alternatives are available. XL Business has over 10 years experience in helping businesses in this often overcomplicated sector of business finance.
Using an Invoice Finance Broker
Friday, May 21st, 2010Any search on the world wide web will reveal numerous factoring and invoice discounting companies. Some of them will be actual lenders, others will call themselves “independent” in that they are not bank owned but they are still a lender and some ae brokers. In our opinion using an invoice finance broker will save you the most time and help you obtain the most appropriate funder for your particular requirements.
However there are two types of brokers. Some of the websites you see on the net are more like like cost comparison sites and will give the business the opportunity to compare quotes. These sites will link into half a dozen factoring and invoice discounting companies and as a result you will be bombarded with calls from half a dozen companies. We are not sure how this type of service can be providing best adviser particularly when no one actually speaks with you to discuss your business.
Surely the best type of broker is the one that either has a meaningful conversation with you in order to find out about your business or even better they take time to visit. At XL Business finance we have access to all the finance companies on the cost comparison sites and far more in addition. Following an initial interview or meeting we can pinpoint the two or three most appropriate invoice finance providers. And the good news is that this service is absolutely free. If XL Business Finance makes an introduction to finance company and they take you on board as a customer a fee will be paid by the finance company to ourselves. This fee is in no way loaded to the charges paid by your selves. ALL invoice discounting and factoring companies pay the same level of fees because the broker market is one of their biggest sources of business. Therefore you can ensure you are getting totally independent viewpoint
