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Factoring

For many businesses invoices discounting provides the cash that is needed to ensure that their business can survive. Without the necessary cash they cannot pay employees or suppliers. Customer payment patterns can be erratic and can cause cash flow issues and headaches.

Invoice discounting is typically the cheaper of the invoice finance facilities available to businesses. It can also be confidential meaning your customers are unaware of any lenders involvement.

In terms of qualifying for invoice discounting¬†it really rests on processes rather than financial performance. Don’t get me wrong financial performance is important but without the right processes in place you will not qualify for invoice discounting no matter how profitable you may be.

There are 2 main process that will be looked at. Your invoicing process will be interogated. It is important that a good audit trail exists and that invoices are raised in arrears of delivery.

Your credit control process or procedure is also important to demonstrate that debts are collected methodically and professionally rather than not at all or on an ad hoc basis when you have time.

If your invoicing process is not right it is unlikely any type of invoice finance facility will be made available. If your credit control procedures are not adequate it is likely a factoring facility would be offered rather than an invoice discounting facility.

Invoice finance quotes can differ dramatically.

They can differ in different ways and for different reasons and it is important to compare like with like. We have touched on this elsewhere on this forum and this article is worth a read – http://www.invoicefactoringforum.com/invoice-factoring-quotes-comparison/

However, when considering any invoice finance quote is is important to understand the following:

  • what service is actually being offered. Please remember that a full factoring offer that includes a credit control service and bad debt protection will cost less than a finance only facility.
  • have you considered total costs? different companies charge different fees beyond the headline rates of the service fee and the discounting fee. Some service fees are all inclusive while other companies charge for nearly everything on top of the service fee.
  • What is the quality of the service? Remember you get what you pay for.
  • Is the structure of the facility right for your company? If not then no matter how cheap it is you are wasting your money.

I feel it is important to find the right structure and then properly evaluate total costs to allow a genuine comparison.

 

Trade finance can be a valuable source of finance that can facilitate international trade. We typically use trade finance along side an invoice finance facility to assist importers.

If an importer has a confirmed order from a credit worthy customer we can provide a letter of credit to a supplier guaranteeing payment. They can then ship the goods. Once received the supplier is paid by the LC. The goods are delivered and an invoice is raised. An invoice finance facility can finance the invoice which repays the trade finance facility. When the customer pays the invoice finance facility is repaid.

The whole transaction from start to finish is financed. This allows small businesses to accept large orders they would otherwise have to turn down because of lack of working capital.

I see a lot of clients who insist from the outset that they want an invoice discounting facility but most of them don’t actually know why.

Invoice discounting is available and importantly it is more readilily available than it used to be. However, factoring is the easier facility to obtain is it represents lower risk to the lender.

So what can invoice discounting offer?

Confidentiality – yes invoice discounting can be confidential but some companies insist on a disclosed facility. Factoring, however, can also be a confidential facility or a disclosed facility.

Control – some companies prefer to keep the credit control in-house rather than outsourcing to a factoring company. So invoice discounting allows a business to maintain control over the credit control function. However, so does a CHOCS facility which is a type of factoring facility.

Cost – many feel that invoice discounting is cheaper. Certainly for larger businesses I would agree. However, at lower levels of turnover there is probably not a lot in it.

Rather than deciding that invoice discounting is what you want I think it is important to consider the structure of your facility, the characteristics you want and then the costs of such a facility.

Construction factoring is a topic that we have covered several times on this forum.

It is a sector that struggles to find suitable forms of working capital finance as banks are reluctant to offer overdraft facilities and invoice finance companies are uncomfortable with the risks associated with the construction industry.

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We were recently approached by a haulage business based in Glasgow who wanted to review their facility. It was a very nice business and they advised that they had only ever reviewed their facility with the Scottish banks. Given the recent well publicised problems they wanted to look at other alternatives. It should also be stated that they are a Scottish registered company.

While we knew the companies that could provide factoring Glasgow to a Scottish registered company we decided to go back to the market to see if anyone new had this capability. We were delighted to see that a few new lenders now had the capability to help businesses based in Scotland and were very keen to do so.

In short we were able to source a very competitive facility for our client.

If you are a business based in Glasgow or anywhere else in Scotland it really is worth exploring what opportunities are available to you.

Sports Bras, you may be asking why on earth we are commenting on sports bras?

Well we want to wish Active Sports Bras well with their launch on Monday, February 20th.

Active Sports Bras are a specialist online retailer of sports bras. They provide the top brands of sports bras at discounted prices.

Brands include Panache, Shock Absorber, Freya and Sportjock.

Active Sports Bras have also launched “Be a sport, Take a mate” in an attempt to get more women back to sport. They advise, “It is a frightening statistic that only 1 in 8 women participate in any type of sport. In poorer areas this is even lower. We want to encourage women who go to the gym or are a member of a team or club to invite along a friend or colleague”.

Good luck to Active Sports Bras with their launch!

Recruitment finance can take various formats. Typically it depends on the type of recruitment and also the size of the company. We will look at the three main options available:

Recruitment factoring: this is suitable for recruitment companies of all sizes and for both temporary recruitment companies and permanent recruitment companies. It provides an advance against invoices raised of up to 90% allowing temps wages to be paid. It is also suitable for permanent recruitment companies but prepayments are typically around 70% for perms. Recruitment factoring is available to new start businesses aswell as larger well established companies. It includes a credit control service and can also include credit protection to reduce the risk of bad debts.

Recruitment invoice Discounting: suitable for companies that are better established and have a good credit control function within the business. This type of recruitment finance does not include a credit control service. It can be confidential or disclosed and can include credit protection to reduce the risk of bad debts. Again it can be used for either temporary recruitment or permanent recruitment.

Recruitment back office solutions: well suited to recruitment companies that want to outsource the full back office function. This service can provide finance in the same way as factoring but 100% prepayment levels can be achieved. It also includes payroll and admin services as well as optional credit protection and credit control.

If you have a requirement for recruitment finance it is worth contacting Smart Factoring Quotes to discuss your options in detail.