Simplifying the Purchasing Invoice for Finance

Purchasing invoice for Finance

hi I'm Sam and I want to tell you all about invoice finance and facturing and along the journey this might even help your clients did you know that smmes account for 99% of UK businesses and 46% of them experience some form of cash flow problems late payment debt stands at around 30.2 billion a year 30 to 150-day invoices should really be a thing of the past but it is estimated that 1 million of the 5 million UK businesses don't know about invoice Finance or what it can do to help businesses therefore having a solid grasp on the invoice Finance Market is a must we want to help explain some of the concepts behind invoice finance and factoring should it ever be helpful or useful for you to explain to your clients it is important to help clients who may have customers that have extensive payment terms sometimes the easiest option may not be a bank loan or an overdraft invoice discounting receivables purchasing factoring and other similar terms are used interchangeably in the market it is important to have a proper understanding of what is needed and where to go to at trade Finance Global we work with professionals and help companies find debt funding we're impartial flexible and work with most funders on the market to ensure smmes really do get the most appropriate source of funding to help them grow this session focuses on purchases or discounting of invoices or receivables from the client of a company so what do we offer in a nutshell we offer business finance Solutions through our network of lenders to companies this video covers receivables Finance which is one type of debt Finance so what's happening and how do invoice factoring and discounting differ firstly we'll cover factoring factoring is present when a business assigns their invoices to a third party and the facturing company has full visibility of the sales Ledger and will collect the debts when G the customer has knowledge that the invoices have been factored this is the typical rout of lots of funders offer however some can offer confidential factoring factoring gives businesses up to 90% prepayment against submitted invoices this enables improved cash flow and reduces the need to wait for payment the company may receive their invoices up to 2 days after invoices are sent out manufacturing companies will offer off to send money the same day or buy backs which is free a business can choose a selective facturing or invoice discounting facility dependent on the funer typically with invoice discounting the customer won't know that an invoice financier is involved again like facturing there is the option to do this on a completely confidential basis invoice discounting is an alternative way of drawing money against the invoices of a business the businesses retain control over the administration and their sales Ledger invoice discounting usually involves a company reconciling with their invoice finan here monthly the main difference between factoring and invoice discounting is that with factoring a funer will have full visibility of your sales Ledger and maintain this by chasing debts on your behalf invoice discounting on the other hand allows you to keep your credit control inhouse but as we already spoke about it would require monthly reconciliation with the invoice financier naturally management fees for invoice discounting are usually a lot lower however a company must demonstrate that they have the correct procedures in place to support an invoice discounting facility why use it and what are the advantages of invoice Finance the funer can assist in managing your sales Ledger and credit control processes only the value of the customers's outstanding invoices are used to improve the cash flow of a business as the business continues to grow working capital might be needed to support this growth which can be realized from invoices working capital grows in line with sales and improves the flexibility of a business possibly allowing it to accelerate growth invoice Finance is incredibly diverse and can be used in many different Industries and sectors now let's talk about the technicals of invoice Finance here I'll cover interest rates what happens if there are existing Finance Arrangements in place and I'll explain what security might be needed so what's interest rate and how much is Advanced rather than waiting 30 to 90 days an invoice financier can pay most of the invoice amount up front and the interest rate is the amount charged for the service interest rates are often linked to base rates the bank will pay for borrowing money such as liel as well as a management fee at first in the invoice can advance around 90% of the invoice amount upfront whether that be through invoice discounting or factoring once the invoices are paid by the End customer the rest is paid excluding interest rate and management fees what if the company has a bank loan even if the company has existing Finance Arrangements such as an existing bank loan or overdraft invoice discounting or factoring may still be okay for a business to use normally A lender will analyze the business prior to implementing a factoring or invoice Finance facility they may audit the financial records of the business and list the approved customers the decision is down to legal and contractual implications such as security and Bank mandates what about security there are often guarantees that might require when a company gets invoice Finance personal guarantees from the directors are usually required a standard most invoice financiers will insist on an all assets debenture over the company additional security may be required based on the financials of the business what are the most important charges with invoice Finance it is important to understand the various charges that could arise I'm going to cover the main four firstly there are discount charges they work like Bank interest and are usually around 1.5 to 4% over the base rate the charge is usually applied on a daily basis and applied monthly there are often credit management fees these cover Administration costs for the management of credit the value will be relative to turnover the volume of invoices and the number of customers a business may have it's usually 0.75% to 22% of turnover invoice discounting fees cover the fees to run the facility and are usually lower than fracturing ranging from 0.2% to 0.5% of turnover then there are credit protection charges charges are in line with the level of risk this depends on whether the factor takes on the risk of bad debt but we'll cover this next it can range from 0.5% of turnover to 2% of turnover within factoring there are two types recourse and non-recourse recourse factoring means that the factor or lender generally does not take on the risk of bad debts in non- recourse fact in they do take on the risk of bad debt meaning it's more expensive as the lender takes on the bad debt risk specified risks around the debtor's failure to pay are accepted but there is no insurance against unpaid debts due to genuine disputes so what's needed for invoice Finance there are three parties involved directly in invoice Finance the funer who purchases the invoice or receivable the business or customer who sells the invoice or receivable and the deor who is required to pay for the invoice a percentage of funds are then Advanced against the value of that invoice what's the usual criteria for invoice Finance invoices should be sent to a business raised on credit terms after the goods and services are delivered and agreed as payable as an example a wholesaler sells 25,000 of equipment to a High Street chain every month they are rapidly growing and they want to buy in more stock and employ more staff in order to continue growing at a fast rate the company waits to be paid by each customer on either 60 or 90day payment terms by using an invoice discounting facility they can receive around 90% of the invoice value soon after submitting and can continue to grow their business thanks for listening to this talk on invoice Finance by trade Finance Global be sure to check out our other training training videos which will be sent to you soon please do not hesitate to get in touch with the trade Finance Global team on info at trade Finance global.com if you or your clients have any questions