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Invoice Finance

02 Aug

Invoice Finance or Overdraft »

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I quite often speak to businesses who are considering whether to use invoice finance or an overdraft. They will usually ask which is the cheapest.

In short an overdraft is almost always cheaper than an invoice finance facility. I have read on other websites that the interest rates are lower for an invoice finance facility than they are for an overdraft and I would agree. However, the interest or discounting fees on an invoice finance facility is dwarfed by the service fee costs. By way of a simple comparison an overdraft may attract a 1% arrangement fee so for a £100,000 overdraft the arrangement fee is £1,000. This is compared to a £100,000 invoice finance facility where a 1% service fee could be levied against the gross turnover of the business. If the VAT inclusive turnover is £1m then the annual service fee is £10,000.

So is an overdraft cheaper? Typically yes.

So why would a business use an invoice finance facility? In short because an overdraft is not available. Banks no longer secure overdrafts by way  debenture where the major asset is the debtor book.

Therefore for many businesses an invoice finance facility is the only option. If you are one of these businesses looking for a working capital facility to ease cash flow pressures it is important to consider your options. Whether you are factoring or invoice discounting it is important to remember that the lenders are not the same. They all have very different capabilities, criteria and pricing structures.

31 Jul

Factoring London »

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Factoring in London is available from several companies. The London office of Smart Factoring Quotes based in York Street is well placed to advise any company on the invoice factoring and invoice discounting options available to them.

As a London based company looking for factoring you have access to the factoring arms of the major banks along with the London based independent invoice finance companies. This includes most of the major players. Importantly you also have access to the independent factoring companies from outside London. There are some great offerings from companies based in the North such as Manchester and Leeds but also from independents based in the South East and the South West such as Bristol.

The geography of your provider should not be a major consideration. Far more important is the ability of that lender to meet the unique requirements of your business. With any type of invoice finance facility, whether it be invoice discounting or factoring the structure of the facility is everything. It will determine how well it will work for you. Pricing is obviously important but should always be second to structure.

29 Jul

Invoice Discount »

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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.

29 Jul

Invoice Discounting Newcastle »

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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%.

29 Jul

Factoring Newcastle and North East »

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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.

29 Jul

Scotland – Invoice Finance »

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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.

21 Jul

Settlement Discounts – Invoice Finance »

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Settlement discounts can make a very valuable contribution to the bottom line of a company. I have recently looked at 2 invoice finance requirements where the companies were looking to access cash with a view to taking advantage of settlement discounts from suppliers.

One company was able to negotiate a discount of 5% and the other was able to negotiate a discount of 3%. Given their turnover this discount made a considerable contribution to their profits. This has to be compared to this costs of an invoice finance facility but in both these instances it was a viable model for increasing profits.

It could be worth exploring what settlement discounts are available to your business from it’s suppliers. Remember to explore what invoice finance options are open to your business and be sure to understand the full costs involved.

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.

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