It is still common place that banks are removing overdraft facilities and forcing businesses to go down the factoring or invoice discounting route. The rational is that banks perceive overdrafts as more risky and when a customer asks for an increase in limit there is often no further security to justify the increase. More often than not banks will only provide an overdraft secured against property. A small overdraft is usually available against the profitability of the business, say £10-£20k but these are becoming less and less common place. To discourage businsses from renewing their overdraft facilities more and more onerous charges and terms are being seen in the market place. A factoring or invoice discounting facility should in theory provide an adequate working capital facility. Factoring or invoice discounting will provide 80% of any unpaid invoices up front. However like any other finance product the service provided varys immensely between the different financial institutions. Whilst the bank is always a good starting point there are many financial institutions which can compete with the banks on price and certainly will give the banks a run for their money in terms of service. For example some finance companies are excellent at providing trade finance facilities, others can provide stand alone stocking finance, others are excellent at providing a very close relationship to the smaller business. It is important that any business is matched up with the most approriate funder for their particular needs.
Tags: Factoring, invoice discounting
