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15 Jul

What can impact on the prepayment level of an invoice finance facility? »

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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.

04 Jul

Concentration Limits »

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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.

29 May

North East Factoring »

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North East Factoring

As a business owner in the North East factoring could provide your business with the cash flow solution it needs to grow and prosper. It is no secret that businesses are taking longer and longer to pay their invoices and as such many business owners have cash tied up in their debtor book. Factoring could be the answer to your cash flow problems but it is important to understand all costs and risks.

Smart Factoring Quotes has an office based in Ryton, Newcastle and works with local businesses to explain not only the benefits of invoice finance but also the costs and risks involved. You can contact us for impartial advice. We are happy to answer any questions and we are totally independent to you can rest assured our advice is impartial.

We don’t believe in the hard sell approach and our aim is to provide you with all the information you need to make an informed decision. This means a balanced approach in explaining the downside of factoring such as the costs and the risks you take in providing security such as personal guarantees and indemnities. Until you fully understand the benefits and the associated costs and risks of any finance facility how can you make a decision?

 

01 May

FS Audit Services »

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FS Audit Services have an updated website.

FS Audit services conduct periodic invoice finance audits and pre lend surveys on behalf of invoice finance companies.

Reports are produced using each lenders own template. FS Audit services believe that this will avoid any confusion internally and will enhance understanding through familiarity.

26 Apr

Invoice Finance – Audit Trail »

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Invoice finance companies place huge importance on a businesses audit trail.  The audit trail ensures that the debts are secure and provable.

If you are looking for an invoice finance facility it is important to look at your business and how robust the audit trail is.

Each business will have it’s own quirks and characteristics. As such you will have to focus on finding ways to implement a suitable audit trail.

By way of examples let’s have a look at some traditional robust audit trails that invoice factoring companies expect to see in place.

Wholesalers

  • Purchase order
  • Proof of delivery (signed by recipient)
  • Invoice

Temporary Recruitment

  • Agreed rates
  • Purchase order
  • Signed timesheet
  • Invoice

Design Agency

  • Brief supplied by customer
  • Quote
  • Acceptance
  • Work is submitted
  • Signed satisfaction note (this eliminates queries down the line)
  • Invoice raised

The better your invoice audit trail the better. Importantly you need some kind of 3rd party sign off by way of a signed proof of delivery, signed timesheet, signed satisfaction note.

This may seem like additional administration but it is key to sourcing a facility and it is a good step for your own internal procedures.

20 Apr

Does invoice finance increase profits? »

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Invoice finance can indeed increase profits. However, it is important to remember that it depends on what you do with the cash that the facility generates. It definitely increases your costs as you will have the invoice finance fees to pay so you will need to generate enough ‘new profit’ to cover these additional costs.

These new profits can be generated from new sales that took place because you were able to purchase more stock, fulfill more orders or perhaps pay more staff which will generate additional sales.

I have also dealt with clients who are able to take advantage of substantial settlement discounts. Any saving available that is more than the invoice finance costs leads to increased profitability.

In short yes invoice finance can lead to increased profits. However, that will depend on your own entrepreneurial abilities.

17 Apr

Selective Factoring »

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Selective factoring allows you to choose which invoices you factor. This means that you can turn selective factoring on an off as required.

If you have a sporadic requirement for working capital selective factoring can be a cost effective solution for your business.

How does selective factoring work?

  • Selective factoring allows you to notify a single invoice or a batch of invoices to be financed.
  • The selective factoring company will conduct some due diligence.
  • Once they are happy to deal with you you sell them the invoices.
  • The selective factoring company will check that your customers are happy with the products or services you have delivered.
  • They will advise your customers that the invoices have been purchased.
  • You are provided funding by the selective factoring company.
  • On the due date the customer pays the selective factoring company.

If you require selective factoring please contact Smart Factoring Quotes.

16 Apr

Purchase Order Factoring »

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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.

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