Invoice Finance
- Thread starter thecarnage
- Start date
Like anything, you can shop around and get a good idea of costs. If it adds significantly more to the business than it costs, then it can't be described as expensive.
PM Me if you want to talk about options.
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Hello
You are right, it no longer is as expensive as most people believe. If you turn over close to a million and only want the company to lend you money against the invoices it will cost less than 1% of turnover. If you want them to chase the invoices and protect you against bad debts it'll be closer to 2%.
With all invoice finance agreements the key is ensuring the small print is negotiated upfront. When the facility works well it's great but if for any reasons you want to stop it can be a nightmare unless negotiated when initially signing. You are right that there is a 'tie in' period with most, usually 1 year but often they will build in a 6 month termination also. The levels of personal guarantees, hidden fees and what happens in the even of closing the facility, especially during an administration, are key to negotiate and most horror stories you will here of are becuase if this.
Happy to help in more detail should you wish (without charge).
Regards
Liam
Anglia Finance
You are right, it no longer is as expensive as most people believe. If you turn over close to a million and only want the company to lend you money against the invoices it will cost less than 1% of turnover. If you want them to chase the invoices and protect you against bad debts it'll be closer to 2%.
With all invoice finance agreements the key is ensuring the small print is negotiated upfront. When the facility works well it's great but if for any reasons you want to stop it can be a nightmare unless negotiated when initially signing. You are right that there is a 'tie in' period with most, usually 1 year but often they will build in a 6 month termination also. The levels of personal guarantees, hidden fees and what happens in the even of closing the facility, especially during an administration, are key to negotiate and most horror stories you will here of are becuase if this.
Happy to help in more detail should you wish (without charge).
Regards
Liam
Anglia Finance
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Just submitted an enquiry to Skipton Business Finance. See what they come back with
How did you get on with Skipton?
If it helps they have a good reputation for the quality of their service
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C
charliemi
If you can get a bank overdraft this is normally the ideal solution, however, despite the rhetoric upper management in the major high street banks are obliged to migrate customers away from overdrafts. In the absence of this, cash flow finance is arguably attractive.
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Why is an overdraft the best solution? Repayable on demand and normally dependent on external security.
Read other threads on banks not renewing facilities - this is set to get much, much worse as banks rebuild their balance sheets.
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Yes, it should be as long as it is confidential
ID and not disclosed. A word of warning though, I went to see a client this week who went direct to his bank and had signed a confidential invoice discounting agreement. The high street bank immediately called his largest 6 customers to verify them in the name of the bank and disclosed he was using ID. Because of this he had one customer upset he was using, I am now placing the ID with a provider for him that will actually keep it confidential. This kind of story is not uncommon.
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Don't be put off by this though as you can always get an undertaking from the bank that they will not contact your customers in any other name but your own and most bank owned factors will honour that obligation
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- Original Poster
- #15
Just submitted an enquiry to Skipton Business Finance. See what they come back with
Just to let you know that the above company were great and sorted out my haulier friend.
It worked out cheaper than a traditional overdraft actually and, after looking at other companies who do the same thing, when with Skipton because of their good account-management reputation.
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To add to the above, yes it's substantially cheaper than a traditional overdraft on a monthly basis. Do bear in mind that the fee per invoice though can make it more overall.
For example the fees alone on a £275,000 drawdown facility costing 1.1% fee plus 3 over base on outstanding balances used to its full capacity will cost £3,025 per month plus interest.
So in essence your facility of £275,000 will cost £36,300 per annum or a real fee of 13.2% on that sum.
For the purposes of clarity there is another element to consider. If you have a non recourse facility then the credit insurance part of that fee alone costs 0.65% on every deal so there is an argument for saying that the facility only costs .45% in fees per transaction.
This equates to £14,850 p.a or 5.4% on the £275,000 which taken in context implies a 5.4% annual facility fee plus an interest rate of 3% over base on the money outstanding.
Given that the majority of overdrafts are running at stupid rates of interest in excess of 6% over base it makes for an interesting discussion.
The credit insurance aspect is almost essential though. Losing a client with £30,000 outstanding is enough to make most people sweat.
The maths here is simple to convert dependent upon your relevant fee structure.
It's also possible to use this model for European clients, and if our own supplier (Barclays Sales Financing) is anything to go by, this can also cost you no more than the facility for UK companies.
For example the fees alone on a £275,000 drawdown facility costing 1.1% fee plus 3 over base on outstanding balances used to its full capacity will cost £3,025 per month plus interest.
So in essence your facility of £275,000 will cost £36,300 per annum or a real fee of 13.2% on that sum.
For the purposes of clarity there is another element to consider. If you have a non recourse facility then the credit insurance part of that fee alone costs 0.65% on every deal so there is an argument for saying that the facility only costs .45% in fees per transaction.
This equates to £14,850 p.a or 5.4% on the £275,000 which taken in context implies a 5.4% annual facility fee plus an interest rate of 3% over base on the money outstanding.
Given that the majority of overdrafts are running at stupid rates of interest in excess of 6% over base it makes for an interesting discussion.
The credit insurance aspect is almost essential though. Losing a client with £30,000 outstanding is enough to make most people sweat.
The maths here is simple to convert dependent upon your relevant fee structure.
It's also possible to use this model for European clients, and if our own supplier (Barclays Sales Financing) is anything to go by, this can also cost you no more than the facility for UK companies.
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M
Mark CFL
InternetSS
As you rightly state there are two charges to any invoice finance facility. One is charged against the value of the invoice, this is normally referred to as the service charge. The other is charged against the funds that are 'drawn down' (discount charge) and is charged as a percentage value over base rate - this equates roughly to the interest charge on a bank overdraft.
The actual charges are often confused, they are calculated very differently. If we look at charges per annum; the service charges is charged on the annual sales (including VAT). The discount charge is calculated on the average funds advanced.
From you numbers it appears that you are basing your calculations on £3.3m sales turnover i.e 1.1% of £3.3m = £36,300.
The only point I would add is that if you have a full service factoring facility then the factoring company is managing the credit control and cash collections and, assuming that they are efficient, this will offset the cost of employing a full time credit controller. When this is taken into account a factoring facility becomes far more cost-effective and value for money.
BTW at 0.45% bad debt insurance is excellent value (as long as you get the limits agreed).
As you rightly state there are two charges to any invoice finance facility. One is charged against the value of the invoice, this is normally referred to as the service charge. The other is charged against the funds that are 'drawn down' (discount charge) and is charged as a percentage value over base rate - this equates roughly to the interest charge on a bank overdraft.
The actual charges are often confused, they are calculated very differently. If we look at charges per annum; the service charges is charged on the annual sales (including VAT). The discount charge is calculated on the average funds advanced.
From you numbers it appears that you are basing your calculations on £3.3m sales turnover i.e 1.1% of £3.3m = £36,300.
The only point I would add is that if you have a full service factoring facility then the factoring company is managing the credit control and cash collections and, assuming that they are efficient, this will offset the cost of employing a full time credit controller. When this is taken into account a factoring facility becomes far more cost-effective and value for money.
BTW at 0.45% bad debt insurance is excellent value (as long as you get the limits agreed).
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Hi Mark
The bad debt insurance is actually 0.65% of the total 1.1%. Overall I cant seem to find anyone even EULA to give that as a stand alone. We get the same rate of any EU companies.
One of the interesting things is how different companies deal with bad debts. A good move is to look at the small print as most companies remove the debt from your advance once it goes to the PPA ledger, thereby messing up your cash flow whilst they collect the money. Barclays don't do this.
Also, providers are notorious at letting debts age, after all they are taking daily interest on it so anyone is best advised to do their own chasing, as we do.
The bad debt insurance is actually 0.65% of the total 1.1%. Overall I cant seem to find anyone even EULA to give that as a stand alone. We get the same rate of any EU companies.
One of the interesting things is how different companies deal with bad debts. A good move is to look at the small print as most companies remove the debt from your advance once it goes to the PPA ledger, thereby messing up your cash flow whilst they collect the money. Barclays don't do this.
Also, providers are notorious at letting debts age, after all they are taking daily interest on it so anyone is best advised to do their own chasing, as we do.
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M
Mark CFL
Hi ISS
If you are not getting decent credit control then an Invoice Discounting facility may be more appropriate. In saying that, it probably won't save you much as 1.1% is a competitive rate if it includes the bad debt protection.
Your last point is one often aimed at Invoice Financiers. However not all providers let debts age. We are excellent at credit control - we have clients who just use us for collections with no borrowing. We can even charge clients a single fee and no discount charge to prove it!
If you are not getting decent credit control then an Invoice Discounting facility may be more appropriate. In saying that, it probably won't save you much as 1.1% is a competitive rate if it includes the bad debt protection.
Your last point is one often aimed at Invoice Financiers. However not all providers let debts age. We are excellent at credit control - we have clients who just use us for collections with no borrowing. We can even charge clients a single fee and no discount charge to prove it!
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That's a bit of an old chestnut and whilst the theory sounds plausible in practice the one thing that scares factoring companies more than anything else is client fraud and it doesn't take a mathematical genius to work out that the quicker the factors collect in the debts the less they will be at risk if the worst happens.
Secondly most factoring companies will be borrowing money at a commercial rate so they don't make a great deal on the turn anyway.
Whilst you are correct in saying that "providers are notorious at letting debts age" that is not true in every case and is down to the inefficiency of the factoring company and not for any other reason.
That's why it pays to use the services of a specialist factoring broker who knows the marketplace :wink:
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D
dvyas
Our Invoice Discounting Service, to access the cash tied up in the value of outstanding invoices, helping you to maintain your cash flow and plan ahead with certainty. Our service is really simple, you raise an invoice to your customer on your own company stationery, send it to your customer and then present us a copy for payment. We give you up to 90% of the value of the invoice straight away. Once your customers funds have cleared, we send you the balance owed, less our fee.
If this is for you, in order to give you an idea of the fee involved, please answer the following 3 questions:
- Your Projected Turnover: _____£______________________________
- Number of Clients: ___________________________________
- Number of Invoices Raised Monthly: __________________________
If you have any questions or further requirements please dont hesitate to contact me 020 31741238
If this is for you, in order to give you an idea of the fee involved, please answer the following 3 questions:
- Your Projected Turnover: _____£______________________________
- Number of Clients: ___________________________________
- Number of Invoices Raised Monthly: __________________________
If you have any questions or further requirements please dont hesitate to contact me 020 31741238
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