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Stories Tagged ‘Invoice Finance’

Factoring in Ireland has become increasingly difficult in recent years as the economy and banking industry in particular has been hit hard.

Arguably when companies require cash flow facilities the most the Irish banks have not been in a position to help except in the most straight forward of cases.

There are however, several invoice factoring companies in Ireland who have stepped in to fill this void. As such Smart Factoring Quotes Ireland was set up to help Irish businesses find the lender best suited to meet their needs.

Invoice Factoring Company – Why does it take so long to set up a facility?

In short it shouldn’t.

The process should in theory be fairly simple for most businesses. The key is to finding lenders that have an appetite for your business in terms of size, sector and geography. From there the key is providing total transparency.

The process will usually start with a first visit by a sales person from the lender. They should assess your suitability and issue you with terms. This is a key stage as if they don’t address potential issues early on you could be going a long way down a road that will not have a positive conclusion.

If you accept the terms the lender will conduct a pre lend survey which is a mini audit focusing on your processes surrounding invoicing and collecting in debts.

If this goes well a final offer will be issued to you and legal documentation signed. If there are any questions you may be asked for further information.

The final step is usually the verification of your sales ledger and perhaps a reference from your existing invoice finance provider if you have one.

All in all the process can comfortably be done within 3 weeks with most lenders. I have seen deals done within a week where necessary.

So where do delays occur when setting up an invoice finance facility?

It is important to remember that you as a prospect will have a lot to do in this process and a lot of information to provide. This can use up a lot of time as an invoice factoring company will be waiting on you.

Sometimes if information is not disclosed from the outset or the sales person does not ask the right questions the facility can fall down at the later stages meaning the process starts again with another lender.

To ensure things go smoothly divulge anything you feel is relevant at the outset. If the sales person has not demonstrated a good understanding of your business how can they hope to convince their credit team you deserve a facility. If they do not give you confidence move on to another lender. Provide information in a timely fashion – this saves times but also instills confidence.

If you have any doubts it is worth using a reputable invoice finance broker.

I have been approached by a client today who has a ‘non-recourse’ facility with an independent invoice factoring company. This is to say they have a credit insurance policy to cover their debtor book. As such the client should not incur any bad debts as long as they operate within the given credit limits.

However, it has transpired that a customer of our client has gone under owing them £150,000. There was a £150,000 credit limit in place so the client thought everything was covered.

The insurance company has now come back and queried certain procedures relating to timesheets and the dates of invoices and our client has provided everything that has been asked.

In short they insurance company has paid £60,000 and is disputing the balance on what appears to be minor technicalities.

It is not my place to say who is in the right or wrong here but the important facts are that the independent invoice finance company advised the client he was set up on their insurance. Now that insurance company has disputed the claim the client is now left owing the lender for the balance of £90,000.

Without access to the full facts it is hard, in fact impossible, to establish blame. The important thing is to highlight that you should request full terms and conditions for any credit insurance that your lender arranges for you. You should ensure this has been received and understood prior to signing any agreement. Importantly you should also ensure that they can provide the limits that you require.

I have recently taken on a case for a client who is leaving a back office service provider and wanted to highlight some risks associated with employing such a company.

My client is a recruitment business who use a back office service provider to raise invoices, do the payroll, credit control, etc.. This service is similar to factoring but is typically provided to temporary recruitment agencies as an opportunity to outsource almost everyting so the business van focus on sales and placements.

These services receive varied feedback in terms of service levels but unfortunately in this instance the implications are for more serious. The lender concerned has failed to pay over circa £500,000 of monies that was due to HMRC and do not appear to be in any position to do so soon. It would appear that our client remains ultimately responsible for bringing the situation up to date with HMRC.

I understand there was a similar situation with a payroll finance company called Wageroller who went under leaving their clients owing large sums to HMRC.

There are obviously some very reputable providers and Lloyds TSB are possibly the largest with their Cash Friday facility. The fact remains that not all other providers seem to be as reputable or as financially robust so be careful.

I have not mentioned the providers name as I have not spoken to them to hear if there is another side to the story. It does however raise concerns and is certainly worth a post.

The perception of invoice finance has changed from being the ‘lender of last resort’ to being a flexible and accessible form of working capital for growing businesses.

Over the years the invoice finance industry has changed its own methods internally to become more user-friendly and acceptable. It has embraced online technology to provide a user friendly interface between the lender and the client. These systems differ from lender to lender but they can allow real time uploading of invoices directly from account packages and they can provide in depth reports about such things as debt turn, specific customer reports and the discounts offered. This more accurate and timely monitoring has allowed lenders to monitor risk more closely and has reduced the perceived risk. This is good news for clients of any invoice factoring company as it has driven down costs and increased the prepayments lenders are now willing to offer. These days we often see lenders offering finance at up to 90% of invoice value and recently I saw a client on 95% prepayment with a bank provider.

Credit control techniques have also been developed that use a mixture of computer generated letters and statements alongside the human touch via telephone calls. These techniques are often a vast improvement on the often ad hoc activities employed by a busy business owner. That said the industry at large accepts that not all business owners want to outsource the credit management function of their business as they want to retain control. The truth is that the closer a lender is to a businesses customers the lower the risk is in providing an invoice finance solution. Beyond the traditional facilities of invoice factoring and invoice discounting the industry have developed various products that can meet the requirements of clients yet still mitigate the risks the lender worries about.

The lack of availability of traditional overdraft facilities over the last decade has also bolstered the numbers of invoice finance users in the UK. This is partly due to what is often referred to as the ‘Brumark Case’ where it was deemed banks are not secure against the book debts of a company unless they have taken an active interest in them. This meant that the security of a traditional all-asset debenture was in question and banks forced clients to offer additional security or to move onto an invoice finance facility to replace the overdraft. This perhaps resulted in many businesses being ‘unwilling brides’ in accepting the facilities of invoice factoring companies it did raise the profile of the invoice finance industry at large and did change the perception somewhat.

More recently with the ever publicised ‘credit crunch’ in full effect the banks were not actively lending in traditional formats, many an asset finance company closed it’s doors and the commercial mortgage companies vanished. In stark contrast the invoice finance market remained very active and in particular the independent invoice finance companies. It is true that there were difficulties in providing the credit limits businesses required on their customers but the appetite to lend against good quality book debts remained firmly in place.

Credit terms have become the norm and any ‘small to medium’ business hoping to supply a ‘high street chain’ or a major supermarket are bound by their agreements and standard payment terms. In contrast they are unlikely to enjoy the same terms with their suppliers who will need paying along with wages and other overheads. The end result for most businesses is a stretch on cashflow and as a result an invoice finance facility is a necessity rather than a choice for many businesses. Large businesses are now used to seeing assignment notices on the invoices they receive and will certainly not frown upon the fact a supplier is using invoice finance. Knowing there suppliers have a suitable facility in place to smooth cashflow and fund growth probably gives them comfort.

There are of course still a lot of businesses that turn to the invoice finance companies as the last resort to breathe some life back into their businesses. Some of these businesses really are on their last legs and while the injection of cash can buy them time it is up to the business owners to make the required changes to save the business. If this does not occur then they are simply delaying the inevitable.

There are now circa 50,000 businesses in the UK that use some form of invoice finance. It is a type of finance promoted by both the Federation of Small Business and the British Chamber of Commerce. Large businesses are comfortable with the fact their suppliers use invoice factoring or invoice discounting. Banks are actively encouraging to take up invoice finance wherever it is a genuine option. This type of finance has become more accessible and also more acceptable as a form of finance for successful businesses.