Cash Flow Finance - An Overview

Did you know that most businesses cease trading because of cash flow problems rather than lack of profits! If your cash flow is giving you a headache here are five ways we may be able to help you ease the pain!

1. Invoice Discounting
   Invoice Discounting works on a similar premise to factoring in that it allows you to receive payment straight away for goods sold on credit. Unlike factoring, invoice discounting can be done on a confidential basis. The bank will establish a separate account and payments from your customers are deposited into that account. Meanwhile, the commercial finance company deposits an agreed proportion of the monies into your regular account – minus an amount of daily interest. Your customers need never be aware that you have their accounts pledged as the security for a receivables loan. Their remittances have to be deposited in the control of the lender but this does not unduly complicate your financial record keeping. To find out more visit our Invoice Discounting page.
2. Factoring
   Factoring allows you to receive payment for goods sold on credit up front. When you invoice your customer you pass the invoice to the factor who gives you a portion of the cash – usually somewhere between 70 and 90%. The responsibility for collecting payment from the customer then lies with them. Once they receive payment they will give you the balance of the amount, minus administration or service charges. Factoring is one of the oldest methods of borrowing against receivables although it is not technically borrowing in the true sense of the word. The factor buys the receivable out right. This means you can arrange factoring services where responsibility for collecting the payment from the customer always lies with the factor, even if they default on payment – you would do this by negotiating a non-recourse option. Factoring is not a confidential service and – since the factoring company will be dealing directly with your customers – you want to be confident that they will be as courteous and diplomatic with them as you would be. To find out more visit our Invoice Factoring page.
3. Block Discounting
   Block Discounting is usually used by rental or leasing companies. It allows you to raise finance by offering your future receipts as security. Finance is secured on the value of your rental agreements freeing up cash to allow you to grow your company. This is a confidential process, your customer will be unaware of the transaction and ownership of goods is unchanged. Your cash flow is improved and your interest rate exposure is "hedged". With this service we do need to levy an arrangement fee. To find out more visit our Block Discounting page.
4. Payroll Finance
   Payroll finance is a flexible alternative or addition to invoice discounting or factoring. Typically, your lender will offer a revolving 60 day credit line to fund your payroll costs. This is usually 2 months of PAYE and National Insurance costs. You will be charged a monthly facility fee along with interest on any outstanding balance. To find out more visit our Payroll Finance page.
5. Contractual Debt Finance
   Used most commonly in the construction industry, contractual debt finance allows cash flow for goods and services to be improved by accelerating cash due from specially selected prime customers. The dynamics are similar to invoice discounting in that the lender pays some, or all, of the amount due for the work up front. The purchaser then pays the lender, rather than the seller. The lender usually needs to be on board at the contract stage. Alternatively, an entire contract can be rolled up and paid for in advance, for an agreed discount.

These five solutions are off balance sheet – that is – they do not affect your existing banking facilities.