Have you reviewed your Invoice Factoring Facility recently?
With many companies using invoice factoring and a growing number of companies providing that service, it makes sense to review your facility to see if it really is delivering the best deal for your company. As a specialist, independent business finance consultancy, we know that all invoice factoring facilities are not the same!
The key question to ask is ‘have you got cash tied up with your existing invoice factoring facility because of concentration levels or credit limits?’
If the answer is yes, then why not take advantage of Senate Money’s FREE independent factoring review. Our aim is to help businesses release funding tied up in their existing factoring facility by improving prepayment levels and increasing concentration limits and credit limits. These are all components of a better factoring facility, which could significantly improve cash flow.
What do we mean by Concentration Limits?
A concentration limit is how much debt your invoice factoring supplier will allow with a single creditor. This can significantly affect the prepayment percentage that they will pay you on invoices to individual clients.
For example, it might be that your overall factoring agreement is for 85% up front pre-payment across your invoices. However, there is almost always a concentration limit to reduce your factoring provider’s risk. Assume that the limit is 30% and the total outstanding ledger is £100,000, then the largest funding that the provider will allow for any single client is £30,000.
However, if that client actually accounted for £50,000 of your debt, then the provider would only consider £30,000 of that as eligible debt for invoice factoring purposes because of the concentration limit. This reduces the total eligible debt that they will finance from £100,000 to £80,000. 85% of £80,000 is £68,000, so the real pre-payment limit here is 68% not 85%.
This is the reason why one of the most common complaints, from many clients who come to us, is that their existing factoring facility does not release the level of cash they were expecting as originally stated in their existing facility. This is usually because of the concentration limit, which is often a 'small print' item.
How Can Our Free Invoice Factoring Review Help?
In our experience a mix of companies are moving away from invoice factoring companies that are attached to banks, many of which it seems have tighter and less flexible underwriting rules that often end up with lower concentration limits, thereby restricting the available cash.
In contrast, the independent factoring providers tend to be more flexible and ‘’commercial’’ in their underwriting. Often concentration limits are higher, thereby releasing more cash into the business, as this case study demonstrates.
Invoice factoring case study
Senate Money recently helped an Engineering company that was using an invoice factoring facility provided by their main bankers. The facility was only releasing c. 60% of the total invoice value, rather than the supposed 80% initial payment stated in the factoring agreement. This was impacting negatively on cash flow.
We looked at the existing facility and found that due to a rigid policy on concentration limits, the overall facility was restricting the amount of cash being released into the business.
We worked with the client to introduce a new factoring facility that used a more flexible and common sense approach. In particular, it took into account the good trading history between our client and their main customer.
The new facility was able to immediately release extra cash into the business by increasing the prepayment limit to 90%.
Contact us for your FREE Invoice Factoring Review
Contact us if you are unhappy or would like to review your current invoice factoring facility.
Senate Money has helped many clients improve cash flow and overcome the most common problems associated with traditional invoice factoring companies:
· Strict concentration limits
· Credit limits
· Prepayment levels
· Poor customer service
As an independent commercial finance broker, we can help improve cash flow by reviewing your existing invoice factoring facility against other providers in the market place. This review is FREE. Contact us or call us on 01675 443878 to book yours.