Optimise Your Invoice Finance Facility
At Funding Solutions we work with you to ensure cash generation is maximised and costs are minimised.
Whether you are looking at a new facility or looking to review an existing facility we can help you to optimise that facility. We look at both structure and costs.
Structure – Maximise Cash Generation
Most people focus on the headline rate of the prepayment percentage. For example a 90% prepayment. This is obviously very important and we can achieve prepayments of 100% in certain circumstances. Importantly this prepayment is against ‘eligible debt’ so it is really important to understand what constitutes eligible debt.
Let’s look at different areas that can impact on the cash generation of an invoice finance facility and how they can be dealt with:
Prepayment: as already mentioned this is the % that a lender will advance you against the eligible invoices. We work with businesses to maximise this percentage and regularly implement facilities with prepayments over 90% and in some instances 100% of the value of the invoices. There are various things that can impact on the prepayment and the most relevant is credit note dilution. In short the lower the number of credit notes issued the higher the prepayment that can be achieved.
Overall Facility Limits: this can often be restricted by certain lenders as they are unable to lend above that limit due to their own funding restrictions. Other lenders can only lend certain amounts from certain offices. In our opinion if your debt is of good quality there is no reason why you should be restricted by an overall facility limit. If this is the case you should speak to us immediately.
Debtor Limits: Individual debtor limits can severely impact on cash generation and there are typically ways around this. Different lenders use different rating systems and can differ dramatically. Insured limits can also differ dramatically. Some lenders offer a discretionary funding limit meaning that all customers will receive at least some funding and others offer a 10% base funding limit meaning that any customer will be funded up to 10% of the ledger value. In short, there are many ways to improve this if your facility is restricted due to customer credit limits.
Concentration Limit: again some of the regional lenders that ‘like to stick to their knitting’ impose concentration limits as low as 20% which if you have a large customer that you do a lot of work with can severely impact on the cash your facility generates. However, other lenders are more than happy to fund at 100% concentration. IF you have an issue with concentration please contact us today.
Exclusion of certain types of work: certain lenders will exclude certain invoices. For example they may exclude contractual work or installation invoices. Not all lenders are the same. If part of your business remains unfunded speak to us and we will work with you to get the funding you require.
Price – Minimise costs and maximise profits
Like with structure most people focus on the headline rates of service fee and discounting fees. In some instances this may be the only fees that you pay however, other lenders have a long list of disbursements.
It is imperative you consider total costs.
Other costs to look at are:
CHAPS transfers: if you are likely to require same day transfers from your invoice finance facility to your bank account you will have to pay for CHAPS. These can range from £5.00 to £45.00 depending on which lender you use. If you used these daily the difference between the cheapest and the most expensive is over £10,000.
Audit Fees: some lenders audit your business free of charge as part of their service which you pay for via the service fee. Other lenders can charge you £1000 or more for an audit. If you have quarterly audits this can be an extra £4,000 per annum.
Minimum Base Rates: a lot of businesses advise us they are paying “2% over base” but when we look closer we find they are paying 2% over a minimum base rate of 3.5%. At the time of writing the Bank of England base rate is 0.50% so in effect they are paying way over 2% over base.
Set Up Fees: many lenders charge a mixture of arrangement fees, legal documentation fees, debenture registration fees and retrospective fees. Some lenders may charge nothing. It is important to build these fees into the equation.
Renewal Fees: some lenders will charge an annual renewal fee at the anniversary of the facility.
Funding Solutions – the IFO (Invoice Finance Optimisation) Specialists
At Funding Solutions we will work with you to help you optimise your invoice finance facility. By minimising costs we ensure more money hits your bottom line profits. By concentrating on structure and by removing restrictions from the facility we maximise cash generation ensuring maximum cash is available to fund your growth.