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Recently we were approached by a landscape gardener than needed assistance in raising some working capital. The family owned business has issues as they were working for the well known house builders. These clients would take a long time to pay and in the meantime they had to pay their workers weekly.

They had approached their own bank who were unable or unwilling to provide an overdraft facility. They referred them to their invoice finance arm who were unwilling to assist as the business was considered to be in the construction industry as they were required to submit applications for payment to the house builders like any other contractor. From there they had approached several independent invoice finance providers who were unwilling to help for the same reasons. The landscape gardener then approached us at Funding Solutions UK.

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Arrangement fees for factoring have crept into the industry in recent years. If you look back at historical comparisons between invoice factoring and overdrafts they would typically say that arrangement fees were payable on an overdraft facility and not on an invoice factoring facility. However, this is no longer the case. Some lenders charge an arrangement fee, a legal documentation fee and a ‘take-on’ fee. The take on fee is the service charge applied to the debts in existence when the facility commences. For example, if you have a debtor book of £500,000 and a service fee of 1% then the take on fee will be £5,000 on day one. Add to this the arrangement fee and legal documentation fee and the first day of your factoring facility is an expensive day at the office!!

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If you are looking to improve your business cash flow their are a few things that you can do and we will talk through these separately. In essence you are looking to speed up the flow of cash into the business while slowing down or eliminating the flow of cash out of the business. Let’s take a look at the different areas that can assist:

Credit control – if you are offering credit terms to your customers then it is important to ensure that you are paid on time. You have provided a good service or product and you are entitled to be paid. You have even been generous enough to offer credit terms so it is not asking a lot to be paid on time. Slow payers can have a real impact on the cash flow of your business. In reality if you are dealing with large organisations that have payment runs, etc.. it can be hard to dictate payment terms but you should still stay on top of it. Efficient credit control improves cash flow and importantly reduces the risk of bad debts.

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Invoice discounting has often been reserved for larger, well established businesses and smaller businesses have been forced to accept invoice factoring.

The good news is that invoice discounting can be accessed by smaller businesses.

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If you have a business that offers credit terms you can spend a lot of time worrying when you are going to get paid. Cash flow is probably the major challenge for any business and this is why more and more businesses in the UK are starting to use invoice factoring.

Invoice factoring offers businesses the opportunity to access up to 90% of the value tied up in unpaid invoices. This means that by using invoice factoring a business can smooth cash flow and access cash to pay salaries and suppliers when needed. Not only does this eliminate stress it also allows a business to grow and prosper. Invoice factoring also offers the opportunity to outsource your credit control function to a professional business that will chase your outstanding invoices with a system of letters, month end statements and phone calls where necessary.

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We are often approached for finance by someone starting a new start recruitment business.

New start recruitment companies can range from an individual setting up on their own through to large organisations with ambitious recruitment plans and everything in between. Whatever the size of the business cash flow is key to ensure that contractors wages can be paid on a weekly basis. This is why finance is important.

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I am often amazed at how much disbursements cost factoring clients over and above the ‘headline’ charges. It is not uncommon for some clients to be paying more in disbursement charges than they do in service fee and discounting fee combined.

I was with a client yesterday where this was the case. When I spoke to them about the fees they were very upset about the ‘games’ the factoring company concerned were playing.

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Trade finance is a great product for importers of goods to the UK. When combined with an invoice factoring facility trade finance can help to finance the whole trade cycle. This means finance can be provided right the way from the confirmed order from your customer right the way through to your customer settling the invoice.

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