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Cash Flow Finance

If you are looking to invoice discount it is worth considering your options very carefully. Different invoice discounting companies operate in very different manners. Depending on how your business operates it could make a huge difference to the amount of working capital your facility generates and also how much the finance costs.

Let’s take a quick look at these 2 areas and see what can happen:

What can impact on costs when invoice discounting?

  • some companies operate a simple charging structure with just a service fee and a discounting fee. Other companies will charge for a variety of additional costs that are not always transparent. Additional fees can include set up fees, arrangement fees, audit fees, renewal fees, minimum service fees, minimum base rate and a whole list of other disbursements. I have been approached by some businesses where the disbursements were more than the main service fee. In effect this was more than doubling their expected costs.

What impacts on cash generated when invoice discounting?

  • beyond the obvious prepayment percentage are various variable that can impact on the amount of cash a facility generates
  • these include the overall facility limit, individual debtor limits, concentration limit, what invoices can be notified, the recourse period, etc..

Elsewhere on the forum I have gone into more detail but I just want readers to be aware that they should be looking beyond headline rates on both pricing and prepayment. It is imperative that any invoice discounting facility is set up properly and for that you need expert independent advice.

Invoice Discounting Newcastle – at Smart Factoring quotes we offer independent and impartial advice from our office in Ryton Village just outside Newcastle.

We were recently approached by a well known local fish wholesaler who was unhappy with their existing invoice finance provider. They had recently entered into an agreement with an invoice discounting company who after taking them on had moved the goalposts considerably. They had dropped the prepayment level and had also dramatically reduced the limit on the facility.

This was having a severe impact on our client the fish wholesaler in Newcastle.

e managed to source a new provider who was committed to providing a higher prepayment level and also a higher facility limit on a confidential invoice discounting facility. At the same time we managed to reduce their costs by 23%.

Factoring Newcastle – if you are looking for a factoring company in Newcastle it is worth speaking to Smart Factoring Quotes. With an office in Ryton Village in the Tyne Valley we are well placed to visit you, understand your requirement and provide true independent advice as to which lender can truly deliver a cash flow solution for your business.

If you are a business in Newcastle looking for invoice factoring or invoice discounting get in touch today. Our approach is as follows:

  • We aim to fully understand your business and your requirements
  • We work with you looking at your processes to ensure you have the best chance of securing the facility you require
  • Our knowledge of the market means that you only end up speaking with lenders who can genuinely assist your business
  • We save you both time and money
  • We ensure the facility is structured in a manner that meets your needs
  • We fully explain all the costs and risks involved
  • There is no hard sell – we simply aim to explain your options and allow you to make an informed decision

Our service is focused on what you actually want rather than trying to force any particular product or structure upon you.

Make us your first port of call and we will gladly visit you to discuss your requirements.

Invoice factoring in Scotland is readily available. Scotland has several dedicated invoice finance providers but also has the opportunity to deal with several lenders south of the border. Scottish lenders include the major Scottish banks and also in Scotland are a few independent providers who actively targets businesses in Scotland.

At Smart Factoring Quotes we have experience of arranging both factoring and invoice discounting facilities in Scotland. Our most recent transaction was for a taxi company that was providing a service to local authorities and invoicing on credit terms.

We are aware of the issues surrounding Scottish registered companies and the laws pertaining to debentures. This means that we can introduce the lender that is best suited to meet your needs.

In terms of costs we understand each lenders capabilities and criteria and we aim to ensure that we set up a facility that is both properly structured and cost effective.

If you take out an invoice finance facility and the prepayment is 80% you may well think that you will receive 80% of the total ledger. In theory that should be the case if the facility is set up properly. The key is to understand what your eligible debt is. Let’s look at areas that could reduce your eligible debt:

Concentration Limits – I have already touched on this in a previous post about concentration limits so will not go into too much detail. However, any debt that falls outside the concentration limit will not be eligible for funding and as such can reduce the eligible debt dramatically.

Recourse Period – If you have a recourse period of 90 days any debt that is over 90 days old will not be eligible for funding. If you have a £100,000 ledger but £20,000 is over 90 days old then the eligible ledger is only £80,000. This is what the prepayment level will be applied to.

Debtor limits – If you have 10 debtors of £10,000 you will have a ledger of £100,000. If you had an individual limit of £5,000 for each of those debtors the total eligible debt would only be £50,000 and with an 80% prepayment applied this would generate funding of £40,000. By trading over agreed credit limits you will in effect reduce the actual prepayment level.

It is imperative you set up a factoring facility that can accommodate the unique features of your own ledger. Ensure that the debtor limits and concentration limits are what your require. Shop around! Also ensure that you understand the recourse period and the effects it has on your funding and costs. Work hard to ensure debts are collected within the recourse period.

A concentration limit indicates how much debt an invoice finance funder will allow with a single debtor. By way of an example if your concentration limit is 30% and your total ledger is £100,000 then the lender will only consider £30,000 of funding with any single debtor. Supposing you had £50,000 of debt with your largest debtor then only £30,000 would be considered as eligible debt. This would reduce the total eligible debt to £80,000 so if your prepayment was 85% the funding generated would be £68,000.

It is important to understand the impact of a concentration limit on your funding. In the example above although you as a business have an 85% prepayment level the impact of the concentration limit has reduced the actual prepayment level to just 68%.

Concentration limits will not be an issue for many businesses who have a good spread of customers. However, if you feel that one customer could account for 20% of the money owed to you at any one time it is important to consider the concentration limit. Some lenders impose a rigid 20% concentration limit while others will offer a concentration limit as high as 100% meaning they will finance a single debtor. Be honest with yourself and try to envisage what may happen in the future.

Purchase order factoring allows your business to accept the large orders that you have always been waiting for. If you are looking for purchase order factoring it is worth calling Smart Factoring Quotes.

How does purchase order factoring work?

If you have a confirmed order from a credit worthy customer a purchase order factoring company can pay your supplier, typically by way of a letter of credit, for the goods. When the goods are delivered to you the purchase order factoring company will require you to deliver the goods to your customer and raise an invoice.  A traditional invoice finance facility would then be used to repay the letter of credit or loan against import. When your customer pays this repays the invoice finance facility.

The whole trade cycle is financed from the confirmed purchased order right through to your end customer paying.

Benefits of Purchase Order Factoring

  • Peace of mind that payment is only made if the right quality and quantity of goods are delivered by your supplier.
  • Ability to take on large lucrative orders.
  • Credit checking of your end customer provides more peace of mind.
  • Seamless financial support for your business from order right through to end customer payment.

Single invoice factoring, often called spot factoring, is available via Smart Factoring Quotes.

If you are looking to factor a single invoice or a batch of invoices this is possible. Traditional factoring and invoice discounting facilities typically require a lengthy contract that will attract a service fee whether you use the facility or not.  Spot factoring attracts a simple charge which is a small percentage of each invoice and you can pick and choose when to use the service and which invoices you finance. The big advantage compared to traditional invoice finance facilities is the flexibility – you can access cash when you need it rather than being tied in to lengthy contracts that require every invoice to be notified.

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