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Archive for the ‘Factoring’ Category

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.

Tags: contract finance
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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.

Tags: Factoring, invoice discounting
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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

Tags: Factoring, invoice discounting, stocking finance
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Independent or Bank Owned Factoring Company

Monday, July 20th, 2009

There are many factors which need to be taken into consideration when choosing a new factoring company. The most important of which is whether an independent factoring company or a bank owned factoring company is the preffered route. An independent company which is non bank owned traditionally tend to be more flexible than banks. Independents don’t have the same financial constraints as the banks as they are able to make their own rules and regulations. In addition many of the sales guys working for independents are very senior and experienced and are able to agree deals instantly up to a certain size. This potential quick turnaround in the decision making process can also is a factor in choosing a funder.

As a rule of thumb we would recommend an independent for a full factoring facility. It is more likely that an independent will chase your customers more frequently. Some banks will only phone the top few customers. Certain independents will chase the entire customer base. Obviously this will have an implication on cost and is the reason why it may appear cheaper to use factoring with a bank. However it must be remembered that factoring is a value added service and the cheapest is not always the best.

However if you are looking for a straight forward invoice discounting it is sometimes difficult to argue that the independents are better than the banks. At this point other factors also need to be taken into consideration. The length of time the business has been trading, is it a new start , is there any contractual element to the debt, is any international trade finance required, is their additional stocking finance required etc etc

Tags: Factoring
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Overdraft withdrawn when switching to factoring/invoice discounting

Monday, July 20th, 2009

If you are considering switching to a factoring or invoice discounting facility it is worth considering the implications this may have on any available overdraft facility. It is more likely than not that a bank will have taken an all assets debenture against the company. This means that their security is the debtor book of the company. Therefore when considering an alternative cash flow product there must be enough flexibility in the headroom of the factoring or invoice discounting facility to fully repay the overdraft and provide additional working capital. Any bank informed of a customers intantion to use a factoring facility in my experience will require the overdraft repaying in full. Remember an overdraft facility is repayable on demand.

I have also seen customers being caught out wanting to switch a factoring facility away from a bank to another independent factoring company. They have forgotten or not realised the bank has an all assets debenture registered against the business to secure a small overdraft. Before the customer can switch the overdraft will need to be paid off but it can often be the customer doesn’t have the headroom to repay the overdraft. Sometimes it may be possible to get a small over payment from the new factoring company or it may even be possible to refinance existing equipment to repay the overdraft and provide additional working capital.

Tags: Factoring, invoice discounting, refinance existing equipment
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Factoring

Monday, March 2nd, 2009

Factoring provides a business cash against unpaid invoices. As credit control is also built into the cost of the facility it is not always easy to compare apples with apples. A high street bank or factoring company will only telephone the top few customers to chase the debt. Smaller independent finance companies more often than not add greater valuer by providing a more extensive credit control facility. Threfore the chepest is not always the best. In addition confidential factoring provides all the benefits of factoring but in a confidential manner

Tags: Confidential factoring, Factoring
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Confidential Factoring

Monday, February 16th, 2009

It goes without saying that invoice discounting is the preferred option when it comes to a confidential cash flow finance facility. Although factoring traditionally provides credit control, it is provided on a disclosed basis therefore your customers are aware of your facility. Invoice discounting is perceived as a bigger risk therefore businesses must normaly be well established and profitable to be considred for such a facility. More worryingly in the current credit crunch/recession banks are transferring customers from invoice discounting to factoring facilities or asking them to move away from the bank completely. It is very difficult to get get invoice discounting for businessses which maybe are experiencing tough trading conditions. However confidential factoring may be a half way house. A dedicated credit controller chases the debt in the name of the client and monies are paid to a trust account. This is a very specilaist area and not all finance companies can offer this facility

Tags: Factoring, invoice discounting
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