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Invoice Finance

It is interesting to see certain invoice finance providers now using specialist departments to deal with businesses that operate in the construction sector.

In part this is really good news for businesses that are definitely a part of the construction sector. If they are very much entrenched in contractual debt, applications for payment and stage payments then a lot of businesses would not have a suitable cash flow solution. Now they at least have an option albeit an expensive one with low prepayments. That said it is probably structured and priced according to risk although part of me feels in some instances lenders are taking advantage where they feel they are the only lender willing to assist.

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Confidential invoice discounting is the ideal invoice finance product for businesses that want to do their own credit control and do not want their customers to know that invoices are being funded. Confidential invoice discounting provides businesses with working capital and will prepay up to 90% of the gross invoice value.

Confidential invoice discounting can however be very hard to come by due to the criteria invoice finance companies put in place.

Lenders look beyond the basic invoice finance criteria of selling to other businesses on credit terms and invoicing in arrears of delivery. Lenders will look more carefully at a businesses financial performance and they expect a robust balance sheet. Equally important are the processes that a business employs to collect in outstanding invoices.

 

Recruitment Finance is a new site that has been launched by the Cash Flow Solutions group.

While it is still under development it will provide an in depth guide on what facilities are available for recruitment companies.

Recruitment companies typically access recruitment finance to allow them to pay wages of their temps. This can take the form of a simple invoice discounting facility, a factoring facility with the added benefit of a credit control service or a full back office solution that provides a full back office service.

Import finance is used to facilitate the import of goods and their subsequent sale.

We typically use a combination of trade finance and invoice factoring to structure a finance facility that funds the entire trade cycle.

On the back of a confirmed order we can provide a finance facility that will pay your supplier and will finance the transaction right up to your customer settling your invoice.

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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