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New start business and confidential invoice discounting

Tuesday, January 19th, 2010

It is now possible for certain new start businesses to offered full confidential invoice discounting. As we know confidential invoice discounting will release up to 85% of any unpaid invoices. As invoice finance can grow with the business it is much more preferable than any bank overdraft which tends to stay at a fixed level. In addition a bank overdraft is repayable at any time therefore invoice discounting provides a much safer option in terms of stability.

Traditionally confidential invoice discounting was for businesses with turnover in excess of £1.0m however before the credit crunch many different invoice discounting were offering confidential facilities for businesses who wouldn’t normally meet the standard criteria for such a facility. Along comes the credit crunch and all of a sudden it is like going back 10 years and all you can get is factoring. From the finance company point of view factoring is allot safer product because they are able to verify the debt by phoning your customers. This can cause a problem for certain customers firstly because they don’t like the finance companies calling their customers ( not all of them are very subtle) and secondly you may already have an adequate credit control facility in place and as such factoring could become unnecessarily expensive.

However it has become apparent that a number of the the more independent invoice discounting companies are once again beginning o relax their criteria and as such it is again possible to obtain invoice discounting whereas last year you may have only been offered factoring. This is again the case with new start businesses. So long as the directors have had experience within that sector, adequate systems and procedures will be put in place invoice discounting with certain finance companies is definitely an option. XL Business Finance has been helping and advising customer for over 10 years in such matter.

Tags: confidential invoice discounting, Factoring, invoice finance
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I want invoice discounting but I have only been offered factoring!

Sunday, January 10th, 2010

We are seeing many businesses being forced by their banks to use factoring as opposed to more risky invoice discounting. This is usually following some adverse trading conditions where the bank wish to keep a tighter grip on the business. The good news is that there are still one or two independent based finance companies that would rather fund via confidential invoice discounting rather than factoring.

Although factoring and invoice discounting are both forms of invoice finance it is traditionally harder to obtain invoice discounting as opposed to factoring. From the point of view of any finance company invoice discounting is a far riskier finance product. Usually invoice discounting is provided on a confidential basis. Many customers prefer the confidentiality that invoice discounting provides as there is still in some circles a stigma against using such products. However the confidentiality of invoice discounting does bring its risks from the finance companies point of view. As the customer you will send copy invoices to the finance company against which approx 85 % of the value of the unpaid invoice is paid upfront. As such invoice discounting is more open to abuse and as such a business must normally have been trading for a number of years, have a strong balance sheet and be profitable before a bank will consider them for invoice discounting.

With factoring the fiannce company maintains afar greater degree of control as the financec ompany will verify the sales ledger on a regular basis and will have more hand on approach to running the facility. Therefor phoenix businesses, loss making businesses and new start businesses may be eligible for factoring but not invoice discounting.

However one finance company we do business with would rather do invoice discounting as opposed to factoring. For the first few months of the contract they will keep a close eye on it and run a shadow ledger and if everything goes well ther business will have a fully operational invoice discounting facility.

Tags: Factoring, invoice discounting, invoice finance
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Invoice Discounting Charges Explained

Wednesday, January 6th, 2010

Invoice discounting is the ability to raise up to 85-90% of a businesses unpaid invoices. There are approximately fifty or so providers based in the UK all offering a similar service. As explained in other posts not all finance companies are the same and as such great care should be taken when choosing a finance company. Most invoice discounting facilities can be run on line and at the end of the day the client will send a copy of their sales day book to the discounter. The discounter will then make available 85% of the invoices available for draw down by the client. The client runs the sales ledger and collection and makes telephone calls to chase the debt. The client collects payments from their customer and pays the money into a trust account. The discounter collects the funds from the trust account and pays back the remaining fiftenn percent less the charges for running the facility.

There are two main charges in invoice discounting agreements. The service fee is a percentage of the clients turnover for the privilege of operating the facility. These costs can vary between 0.1% -1% of turnover depending on the circumstances of the facility. The second charge is the cost of borrowing the money which is an interest charge for the priveledge of borrowing the money. Charges are usually 1-2.5% over the cost of borrowing. Some providers will link to bank base rate and others will link to LIBOR, which at times can be completely different. In addition some invoice discounting companies will charge a minimum base rate and as such the headline interest rate must be viewed with an air of caution.

If base rates are low as they are now and we are expecting rates to go up a lower add on rate with a higher minimum may be better tan a ower min but with a higher add on.

Tags: invoice discounting
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My bank wont give me invoice discounting

Tuesday, December 15th, 2009

Invoice discounting is only one of several invoice finance products available in the market place. Invoice discounting is mainly provided on a confidential basis and as such is commonly known as confidential invoice discounting. How it works is that a customers will raise an invoice in the usual manner and post a copy to the finance company. the finance company will then make a percentage of the invoice available to the business typically 80%. All this can be viewed on line and different finance companies have slightly different systems and procedures when your customer pays you the finance company is repaid and a small fee is paid to the funder.

As invoice discounting is quite a trusting way of operating a facility and is very much open to fraud and missuse any finance company requiring an invoice discounting facility must be squeaky clean, be reasonably profitable, be very established and should have adequate systems and procedures in place. Therefore as most banks, in terms of underwriting, tend to be over cautious in the current climate and will shy away from offering such facilities. A factoring facility will give the bank more control over the ledger as payments from your customers must be made direct to the invoice discounting company.

The good news is that there are a few alternative finance companies that will take a few. Most finance companies will put a customer on factoring and if they prove themselves then after a period of time they may allow the customer to go to confidential invoice discounting. A half way house is for the finance company to leave the credit control with the client however payments are made direct to the finance company. XL Business Finance has helped a number of businesses that have been refused invoice discounting via their banks however we have been able to help by providing a funder that will give the customer a chance on invoice discounting. If it doesn’t work they will put them on factoring.

Tags: Factoring, invoice discounting, invoice finance
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Non recourse invoice discounting

Tuesday, December 1st, 2009

Imagine the financial flexibility of invoice discounting combined with the added benefit of bad debt protection. It is no wonder that seventy five percent of the enquiries we get are from customers wishing to insure their debts. However as with any factoring or invoice discounting, there is so many different financial institutions to choose from. XL Business Finance has been helping customers choose the most suitable funding partner for over ten years.

Non recourse is the same as bad debt protection and can be offered as an add on by most invoice discounting providers. Pricing generally starts at between 0.45% of turnover and can be high as 1%. This is addition to the normal discounting charges. As with any form of debtor finance it is important that you choose the right finance company to fund your business. It is no pointy in going for the cheapest bad debt protection if you are not getting the appropriate level of funding. An independent invoice discounting company may use a number of different credit reference agencies to set credit limits whereas a bank will use their own in house insurers. It is worth getting an independent broker to check out a few alternatives. Also beware we have seen some banks recently setting quite high individual credit limits only to take it away by capping the overall facility. Certain independent funders will also go the extra mile to get the best possible funding limits.

Independent Generally speaking 80-85% of of the value of your invoices can be released immediately. Invoice discounting can be either confidential or disclosed however the credit control remains with the business. From the finance companies point of view this facility is more risky than factoring and as such any finance company offering such a facility will carry out an audit to make sure the correct credit control systems and procedures are in place.

Tags: bad debt protection, invoice discounting, invoice discounting company
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Which invoice discounting company is best for financing contractual debt.

Tuesday, November 24th, 2009

Not all invoice discounting companies are the same. This is especially true if there is a certain amount of contractual debt within your invoicing procedure. Contractual debt is most relevant in the construction sector whereby invoice are produced at certain stages within a project. There are only two invoice finance companies that are capable of handling contractual debt and both are very different finance companies indeed

Most finance companies have been told that it is not possible to raise cash against contracts ( normally by their bank) however XL Business Finance has been helping clients obtain debtor finance where contracts are involved. The problem with contractual debt if that the job isn’t finished then the end customer can with hold payment. For this reason if you mention contracts nearly every invoice discounting company in the land will not be able to provide funding.

There is one high street bank that can provide invoice discounting against contractual debt. I have told you in previous blogs that we are not totally against the high street banks as there are a few exceptions to the rule and this is certainly one of them! The other finance company is a larger independent that uses in house quantitative surveyors to check the value of the work undertaken. Which finance company is best for you depends upon your location, length of time trading and how profitable you are. XL Business Finance is very capable of assisting you with finding the right funding partner.

Tags: invoice discounting, invoice finance
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Invoice discounting or factoring ?

Tuesday, November 17th, 2009

Invoice discounting are two completely different funding products. Although most finance companies will offer both facilities not all finance companies are great at doing both. Altough both funding products will release cash against unpaid invoices and potentially give you the financial freedom to grow or develop or indeed just survive in the current economic climate. Factoring is traditionally provided with full credit control whereas invoice discounting is provided on a confidential basis.

Factoring can be provided for businesses with turnover as little as £80,000. In order to be eligible for invoice discounting turnover will need to be at least £250k. Up until a few years ago unless your business had turnover of at least £1.0m then there would be absolutely no chance of obtaining an invoice discounting facility. However when different finance companies were vying for business in the good old days before the credit crunch this minimum turnover became lower and lower.

Invoice discounting is provided on a confidential basis which means your customers are unaware that the finance company is providing funding against yourinvoices. Therefore from the funders point of view the facility is more risky than factoring as potentially the facility is more open to abuse in terms of fraud and raising fictitious invoices. Therefore a business must be profitable ,long established and have well established credit control procedures in order to qualify for invoice discounting.

Factoring is always provided on a disclosed basis and your customers will be aware that the finance company is providing funding against your invoices. More often than not the factoring company will provide a full credit control service. Therefore the finance company has a much greater grasp and control on your finances and as such they are happy to provide funding for new start businesses , businesses which are loss making and businesses which have a relatively small turnover.

Tags: Factoring, invoice discounting
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Which is the best invoice discounting company

Friday, November 13th, 2009

A question that we get asked most regularly. The simple answer is that it depends on the particular needs of each customer. It also depends on the length of time the business has been trading , is it profitable and the quantity and quality of the ledger. If it is a very clean ledger ( or debtor book ) in that it is not difficult to collect payments then in theory there should be many finance companies to choose from.

However you must take into account other considerations. Certain finance companies are very good at servicing certain debt. There is only one high street bank that is any good with foreign and international debt and there is only one bank based invoice discounting company that is any good at financing contractual debt. And guess what they are two completely different banks. Some banks are also good at offering built in credit insurance and others can be difficult when it comes to setting funding limits. Most banks and independent factoring company are fairly similar when it comes to pricing however the cheapest deal isn’t always the best.

A customer quoted to us recently that he wished he had chosen a high street invoice discounting company but rather that he he had had gone with a independent finnace company that traditionally could be more flexible and thus providing more cash against his invoices.

Tags: invoice discounting
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Lloyds bank restricting my invoice discounting facility

Thursday, November 12th, 2009

Hardly no surprises that any business currently using a factoring or invoice discounting facility with LLoyds bank may be having their credit lines severely restricted. XL Business Finance has seen three customers this week all wishing to move from LLoyds due to a restriction in cash availability. On Tuesday this week LLoyds bank announced the loss of 4500 jobs some of which will go in the collections department. We are unclear if itis from their cash flow arm LLoyds TSB Commercial Finance however the bank is obviously under pressure and as such we are starting to see businesses being affected by their noncommercial view.

Traditionally it can quite a long winded affair switching invoice discounting or factoring companies especially as many finnace companies will tie in their customers for a least a year and will require to provide 3 months notice if they wish to switch funder. Sometimes it my be possibel to buy one elf out of a deal with the support of a new finance company however even then it might be a costly exercise. The good news is that many of LLoys customers have been signed up to a short one month notice contract and it is these customers that we are seeing take advantage of their ability to switch finance company. If in doubt we can check any documentation on your behalf and give you some advice from an independent view point.

Tags: Factoring, invoice discounting
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Invoice Discounting

Thursday, November 5th, 2009

Invoice discounting is a form of invoice finance providing the financial freedom to grow your business. This form of discounting is usually provided on a confidential basis meaning your customers are unaware that you are using a invoice discounting company. As such the invoice discounting provides a flexible form of finance enabling a business to release 90% of their unpaid invoices. Recently XL Business Finance has been advising a number of business with turnover in excess of 20m that have been disillusioned with inflexible high street banking institutions. The good news is that there are a number of specialist lesser known banks specialising in businesses with larger turnover. There are not many institutions capable of handling such large corporate businesses but we have the expertise to matchyou with the most suitable funder.

XL Business Finance regularly introduce invoice discounting to two or three finance companies some of which are foreign owned. These funders have been established with the sole purpose of specialising in the UK invoice discounting market. I guarantee you probably haven’t heard of these finance companies however their personnel are of he highest quality and have the ability to structure the most complex of deals. All of our customers have been highly impressed with our recommendations.