Invoice Finance
websitebuilder • 7 April 2020
The effects of COVID-19 on S.M.E businesses across the UK has been profound, so let’s be clear, if you’re a business owner worrying about how the market uncertainty is impacting on your business already, or may in the future, you are not alone!
We’ve been assisting lots of clients new and old, who are confused about what funding is available to their business. We thought putting together a series of summaries around the various financial products available to businesses would be a fantastic way to give something back.
This article focuses on Invoice Finance, you may be aware of how these facilities work. If not, we’ll help answer the question; “What is Invoice Finance?”.
Invoice Financiers use unpaid invoices as security for providing funding. Approved businesses access a percentage of an invoice’s value, typically 85 or 90% and quickly; sometimes within 24 hours. The amount of funding given is based on the risk appetite of the Finance Provider.
Invoice Finance is growing in popularity among UK SMEs, particularly those with long cash collection cycles like construction, manufacturing and recruitment.
If you’re in the business-to-business (B2B) sector you will probably be raising invoices for your goods or services and normally you’ll be waiting 30 to 60 days to be paid for those invoices.
So, how do you improve your cash flow when your customers are struggling to pay their bills?’
There are two main types of Invoice Finance, Factoring and Invoice Discounting:
- Factoring allows businesses to generate money against unpaid invoices. The finance provider will lend you up to 90% of the value of your invoices. It will also manage your sales ledger and collect payment for your invoices directly from your customers, hence the term ‘disclosed invoice finance’. They will then deduct the costs of the factoring service, before paying you the remaining balance.
- Invoice Discounting
works similarly to Factoring but as a business, you retain control of customer payments, hence the term ‘undisclosed invoice finance’. Your business pays a fee and a 'discount charge' (similar to interest) if the funding is utilised, similar to a standard Overdraft.
There are also a few different ways you can finance your debtor book within the two above structures, as illustrated below.
- Selective or Spot Factoring essentially means only funding a select few or single debtor. For example, as a business you may only have one customer who you supply on terms, the rest may pay as soon as the invoice is raised. In this scenario, you would only need to finance that customer's invoice, for which a selective invoice finance line would work.
- Whole Ledger Finance
is used when all of your customers pay on terms, and as a result, you require your whole debtor ledger to be funded, not just a select one or few.
A question to ask yourself is “How much cash have I got stuck in my debtor book, could having access to 85% or 90% of that capital help my business in the current situation?”
Invoice Finance is also available for qualifying business's via the Government's CBILS support scheme.
If you’d like to arrange a no obligation exploratory call to discuss, please get in touch on 01845 591488
We were approached by a client who had been operating successfully in the bar / restaurant sector for the past 9 years. The client was given the opportunity to purchase the freehold title of the restaurant and initially employed the services of another commercial finance broker to raise the capital for the purchase. The broker arranged a short term bridging loan combined with two other longer term loans for the client on the understanding that the client would be able to refinance onto a long term commercial mortgage post completion. The broker was unable to deliver on his promise of refinancing the client's debt, leaving the client with significant debt at an average interest rate of 13.5%. The client approached Equinox Commercial Finance and we were able to refinance the £430k debt onto a commercial owner occupier mortgage at a 5-year fixed interest rate of 8.31%.
The programme was developed in conjunction with the Association of Short-Term Lenders (ASTL) and Financial Intermediaries and Brokers Association (FIBA). It is designed to build skills and knowledge of the specialist property finance sector, including bridging finance, buy to let lending, commercial mortgage lending, and development finance. Key Skills Include: Ability to apply understanding and identify most suitable product for customers Understanding of exit strategies of financial products Understanding of regulatory and processing requirements, and how each of them is underwritten Understanding of the benefits and risks of different specialist finance products, to customers and lenders Understanding of the different types of specialist property finance options.
We were able to provide a commercial mortgage to a North Yorkshire landlord who had previously taken a two year bridging loan to secure the purchase of a pub. The landlord was a new entrant to the leisure industry two years ago, having retired from his previous profession 12 months earlier. Therefore, The client had less than the 3 years of minimum experience required by commercial mortgage lenders operating in this sector at the time. On this basis Equinox Commercial Finance were able to provide a 2 year Commercial Bridging Loan to the client, which enabled him to purchase the property. At the end of the 2 year term the client had enough experience to be able to re-finance onto a long-term commercial mortgage, although given the current climate most lenders had withdrawn their appetite to lend to the sector. The client had implemented some impressive growth plans including increasing the size of the rear bar area, further decorative improvements and development of the outside areas. He had also made significant cost reductions, which helped his cash flow position. On this basis Equinox Commercial Finance were able to provide a mid term Commercial Mortgage product to the client, with a view to refinancing again when the current turbulence in the lending market subsides and mainstream lenders are open to the leisure sector once again.
Asset refinancing is a way of releasing cash from a business asset that your company already owns. Lots of businesses across all sectors have cash tied up in equipment, machinery and vehicles.
We were approached by a local accountancy practice who were looking to refinance property within its existing SSAS Pension Fund to purchase a new office. The client was looking to raise capital of £330k to complete the purchase. Equinox Commercial Finance were able to place the client with a specialist lender that was able to offer 55% LTV over 25 years at 5.85% + BOE Base Rate.
We were approached by a UK ex-pat currently living in Canada who wished to refinance a commercial investment mortgage to buy more property. The client was looking for the maximum loan to value (LTV) available on his personally owned portfolio of three fully tenanted industrial units located in Surrey, valued at £1.15 million. The limiting factor for the client was his current ex-pat status, which precluded him from offers of funding from all of the mainstream high street banks. Equinox Commercial Finance were able to place the client with a specialist lender that was able to offer 60% LTV and a 5-year fixed rate.
We were approached by a local business wishing to purchase a CNC Machine to improve the output and efficiency of their busy production line. A CNC machine would allow for the automation and control of machine tools and can be used to perform precise cuts and other machining tasks, that would be difficult to do with the human hand. CNC machines are also used on tasks that humans can do themselves, but which would take them much longer to complete. We have access to a whole of market panel of lenders and were able to quickly secure hire purchase finance for the machine at a competitive rate of 5.3% over a 7-year term.
The start of 2022 saw a jump in new tenants looking to rent UK commercial property, with the uplift particularly prevalent in prime office space. Investor enquiries across all UK commercial property also continued to rise, according to the RICS. Read the Full Report here>
The UK holiday let industry has been steadily growing in popularity among property investors and holiday goers alike and doesn’t look to be slowing down anytime soon! The yields available on holiday let properties have rocketed, and it is no surprise to see well-maintained properties, in the right locations, producing yields over 12% per annum. Holiday let properties offer some landlords an alternative tax-efficient investment vehicle, due to a more favourable treatment of loan interest. This has been felt even more by landlords since the full loan-interest tax-relief restrictions came into force in April 2020. However, we advise that clients seek professional tax advice before making any decisions. We have access to a wide pool of lenders offering holiday let mortgages. They typically offer: A maximum loan to value (LTV) of 75% Rates from 3.29% on a two-year fixed rate, through to 3.79% for a five-year fixed rate. Mortgages are available to individuals, property holding companies, or trading limited companies (i.e. the client's current business operation). If you are looking to diversify your property investment portfolio, or continuing to expand an existing holiday let portfolio please call us on 01845 591488.
We've recently seen an increase in enquiries from business owners looking to purchase property from which to run their company. Often, their existing landlord has offered to sell them the property before putting it on the open market. Others have found recently vacated property, which perfectly suits their businesses’ requirements. For example, we recently placed a relocating Children's Day Care Nursey client with a lender who was able to offer a mortgage equal to 65% of the full going concern value of the nursery, which included the goodwill of the business at an interest rate of 3.92%, fixed for 10 years. If purchasing your own business premises is something you’re looking to do, we can help.
