Wilkins Kennedy LLP.

Cash flow FAQ


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An invoice finance and asset based lending guide.

When it comes to something as critical as cash flow and business finance, it is not surprising that business owners come to us with a number of questions. We have compiled a selection of the most frequently asked questions from visitors to cash-flow.co.uk below, which we hope you will find helpful.

 

What is the difference between factoring and invoice discounting?

Both factoring and invoice discounting provide a significant injection of cash against your company’s sales invoices. These facilities are designed to accelerate your cash flow and provide on-going finance linked to your sales. Typically, this equates to around 85% of your invoice values. With factoring you gain the additional benefit of a comprehensive sales ledger management, credit control and collections service, freeing you to focus on your core business activities.

Invoice discounting tends to be more appropriate for mature businesses with well-established systems, where you continue to control your sales ledger. Generally, with invoice discounting, the funding relationship is entirely confidential, so that your customers are entirely unaware of the facility.

How does invoice finance work?

Invoice finance transforms your cash flow by converting your sales invoices into cash. It’s as though your debtors have paid upon receipt. The process couldn’t be easier.

You assign your sales invoices to an invoice finance company. Then, within 24 hours of receiving your invoices, they pay around 85% of their value in cash. The remaining balance, less the invoice finance company’s charges, is then made available to you once the debt has been collected.

Why is invoice finance increasingly preferred to a bank overdraft?

The major difference between an invoice finance facility and a traditional overdraft lies in the level of cash that is available to you. Typically, an overdraft will provide the equivalent of around 40% to 50% of the value of your sales ledger, whereas invoice finance delivers up to 80% to 85% of your invoice values.

Invoice finance is far more flexible and comes with none of the fixed ceilings of an overdraft that stifle growth or the seemingly endless round of time-consuming renegotiations. An invoice finance facility effectively provides an ongoing supply of finance that is linked to your company’s sales.

What are the costs of invoice finance?

Lenders will tailor the cost of your invoice finance facility to your specific business and requirements. At cash-flow.co.uk we will ensure that the pricing of your facility is transparent and as clear.  Typical fees charged by lenders are as follows:

Arrangement Fee - this is a fee charged to cover the due diligence on new clients.

Service Charge Fee - this is a fee that covers the ongoing servicing of your facility and will vary according to the value and volume of invoices you put through the facility.

Discount Charge - this is a percentage charge above the base rate or LIBOR, calculated daily on the money drawn down from your facility.

Legal Costs - this is a cost for putting the facility documentation in place and may include the cost of preparing and registering a legal charge over your business.

The above fees and costs are all subject to negotiation with the lender. 

We will help you structure a facility that works for your business at the lowest possible cost.

 

What will my customers think of my business using invoice finance?

Invoice finance is a widely used form of business finance whether assisting a business to grow or helping a business manage its cash flow.  According to the Asset Based Finance Association (ABFA) nearly 42,000 companies now use invoice discounting or invoice factoring.  However, if you would prefer your customers did not know your business was using invoice finance then there are products available which will not disclose it to your customers. 

How can invoice finance help my business?

Invoice finance can help you:

- Treat your invoices as a tangible asset releasing cash tied up in your unpaid invoices.

- Identify the early signs of payment problems to minimise bad debts.

- Improve your cash flow by closing the gap between raising an invoice and receiving payment.

- Take advantage of early payment discounts with your suppliers.

- Maintain a healthy cash flow by balancing your cash flow with regular cash inflows.

- Increase your cash flow as your sales grow.

Once an invoice has been raised how long does it take to receive the money from the invoice finance company?

You will usually receive payment within 24 hours.

How much money will I receive against each invoice?

Typically an invoice finance company will advance approximately 85% of the value of an invoice depending on which sector your business operates in.  The remaining balance, less the invoice finance company's charges, is then made available to you once the debt has been collected. See "What are the costs of invoice finance". 

What is asset based lending?

This is where a lender looks at a company's assets and will lend against a company's property, plant, machinery or stock.  Some lenders will consider lending against all types of assets both tangible and intangible.

What is the difference between recourse and non-recourse factoring?

Recourse factoring does not include bad debt protection.  This means that should a customer fail to pay an invoice that has been financed then the invoice finance company will look to the company to repay the finance on that invoice.  

Non-recourse factoring includes bad debt protection.  This means that should a customer fail to pay an invoice then the invoice finance company will credit you with the amount of the debt.  This type of facility will be subject to a customer receiving credit approval and subject to certain agreed credit limits with the invoice finance company.

What are "approved debts"?

These are debts which an invoice finance company is prepared to lend against.  Disputed debts are not normally approved and many lenders will not consider funding invoices that are greater than 90 days old. 

Will I have to provide any security to secure an invoice finance facility?

The level of security an invoice finance company will require from your business will vary depending on how long your business has been trading and what sector it operates in. They will of course have the benefit of security over your invoices but they may require additional security.  This additional security may take the form of a personal guarantee and is usually taken from the directors.  See "what is a personal guarantee?"

What is a personal guarantee?

In addition to taking security against your business such as a debenture (registered at Companies House incorporating a fixed and floating charge) a lender may require the directors to provide personal guarantees.  This means that should the lender fail to recover the money owed to it under its security against your business they will look to the directors to cover any shortfall under their personal guarantees.  Personal guarantees take many forms, for example a guarantee can be capped at a certain level against individual directors or maybe a joint and several liability shared amongst all the directors.

Can I use invoice finance to fund my weekly payroll?

You’ll be all too familiar with the challenges associated with running a recruitment agency. You need to meet regular weekly commitments to pay temporary workers, yet in many cases, you know you won’t get paid by your client until over a month later. 

A flexible recruitment finance facility, such as invoice discounting and factoring, is often the most effective payroll finance solution for temporary recruitment companies and is growing rapidly in popularity. Both recruitment finance products provide an immediate cash payment based on of the value of your invoices, enabling you to pay wages on time, every time.

Do you provide payroll services?

At cash-flow.co.uk we provide an outsourced payroll service designed to suit the changing needs of your business. Ranging from a full outsourced service to emergency cover or simply advice on improvements to the efficiency of your existing systems.

The service is provided through our specialist payroll department which is a registered BACS bureau and has ISO 9001 accreditation. We employ state of the art software and IT systems to ensure our process is as efficient as possible. Our flexible approach enables us to provide the service on a weekly or monthly basis and is adaptable to fit in with your requirements.

Our services include:

1.Advisory

-Advice on PAYE and National Insurance contributions
-Advice on and calculation of statutory sick pay and maternity pay
-Dealing with pension contributions, court orders and attachment orders
-Audit and pre-PAYE inspection advice
-Negotiating with HM Revenue & Customs when necessary

2.Processing

-Processing payrolls for all categories of employees
-Processing student loans and loan repayments
-Processing Save as You Earn (SAYE) and Give as You Earn (GAYE)
-Working family tax credits
-Preparation of year-end returns and issuing of P35/P60/P14 documents
-Data entry for bonus calculations, overtime and expenses
-Tronc schemes

3.Delivery

-Production of payroll reports – specific to your specifications
-Production of payslips
-Production of BACS payments direct into employees' bank accounts
-On-line and manual filing of returns

Do you provide management accounts and bookkeeping services?

At cash-flow.co.uk we provide a flexible outsourced accounting service enabling you to select any number of individual services or opt for a full outsourced finance function. We can provide a dedicated team or temporary cover to help you during staff absences.

Our services include:

1.Preparation of management information

We can provide management accounts based on your requirements. These typically include an overview of financial management, highlight key performance indicators and risks.

2.Preparation of management accounts

3.Nominal/general ledger maintenance

Our general ledger maintenance includes adjustments for prepayments, accruals, depreciation, payroll and balance sheet control account reconciliations.

4.Cash book maintenance

5.Sales ledger/accounts receivable

The speed and accuracy with which you are able to invoice customers is vital to maintaining healthy cash flow. We provide a centralised invoice control to help you improve cash flow and achieve efficient customer invoice settlement.

6.Accounts payable

We can manage your entire accounts payable function from processing invoices to automated payment to suppliers.

7.Bank reconciliation

We undertake regular reconciliations between your general ledger bank balance and the bank statement balance to identify any mistakes and omissions.

8.VAT returns

We can manage your VAT registration, submission of returns, EU sales lists and Intrastat declarations. We can also represent you at tribunals and investigations.

9.Invoice discounting and invoice factoring

We can help you with the submission of information required by your invoice finance provider including:

-provision of management accounts
-reconciling your invoice finance account with your invoice finance provider's monthly statements
-reconciling your accounts received ledger with that maintained by your invoice finance provider

At cash-flow.co.uk we have extensive experience of a large variety of accounting software packages and can provide our service using your preferred software. Software used for current clients includes Sage Line 50, Access Accounts, QuickBooks and Microsoft Dynamics GP.

Do you have another question?

If so please contact us at enquiries@cash-flow.co.uk, complete an enquiry form or alternatively call our dedicated cash flow contact centre on 0800 019 4251.

We can help your business release cash tied up in invoices, property, plant, machinery, stock and a range of other business assets.

Proven cash flow finance solutions such as invoice discounting, factoring, asset based lending, recruitment finance and construction finance release substantial funds immediately. Let us compare the market to find you the best business finance deals.

Cash flow is a critical resource - the fuel for your business. Without it, your business plans grind quickly to a halt.

With a strong cash flow, your business has momentum and can sustain rapid growth.

You can see the market opportunities and you know you have the skills to take advantage of them. If only cash flow wasn’t holding you back.

Find out more about cash flow finance solutions and our outsourcing service which provides payroll and bookkeeping services for your business.

For a FREE NO OBLIGATION QUOTE simply complete the form or call our cash flow contact centre free of charge on 0800 019 4251 to realise your potential for growth.