Invoice Discounting

T

TtV2004

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Does anybody have any experience of the above good or bad. Has been suggested by the bank and seems like a good offer.
 
I have worked with it in a couple of companies.

It's flexible (compared to a overdraft) and better than factoring as your customers and suppliers won't be aware of you using it. There is a bit of admin involved but nothing OTT.

The charges are high and they can be pretty inflexible. Admin charge of approx 4000 - 5000 per annum (regardless of the level of usage of the facility), interest is at prime plus 2.5 - 3%. I have worked it out fairly efficiently by getting early payment discounts from some suppliers to spread out the admin charge a bit better. The inflexibility comes in the bank's requiring month-end reporting by the 10th of the month.

You need to have a good debtor spread and be pretty good at collecting money on time. As the bank will have loads of rules for ruling out various debts for one reason or another (e.g. any customer of 10% of ledger value, any debt over 60 days). Be sure to haggle with them over the % of the ledger that they will advance as this should be negotiable. I've seen them try to advance 50% initially and wind up going with 75%.

IMHO, it would be better not to have it but if you're in a growing company that needs the cashflow then it is not a bad way to finance it.

Rebecca
 
Thanks Rebecca
Just one follow up question. We are doing this as a way to fund a mbo. The bank have sent an acceptance document for discussion. On it they they will want a directors guarantee equal to the sum advanced. Surely they have the security of having the debtors ledger and who not require this.
At our last meeting they said they would require P.G.s on the overdraft which is fair enough but I think they might be just trying it on looking for guarantees on the money which is covered under the discounting.

Thanks in advance
 
The guarantee is standard as far as I am aware. Realistically it will only apply in a situation where you don't collect 50-75% (depending on what they advance you) of your outstanding debtors, which is fairly unlikely even if the company goes bust.

The protection offered by the status of "limited private company" is SFA to director's of an SME as far as I can see anyway, since most directors are up to their eyeballs in personal debt to get the business off the ground as you are probably all too aware :)

I'm not sure if you've seen it but the amount of legalistic paperwork involved is amazing. It's not lot a lease/HP/overdraft or anything. It is more on a par

Rebecca
 
MissRibena said:
The charges are high and they can be pretty inflexible. Admin charge of approx 4000 - 5000 per annum (regardless of the level of usage of the facility), interest is at prime plus 2.5 - 3%. I have worked it out fairly efficiently by getting early payment discounts from some suppliers to spread out the admin charge a bit better. The inflexibility comes in the bank's requiring month-end reporting by the 10th of the month.
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Hi

A couple of quick additional comments, if I may:


* Haggle a bit on the pricing, particularly after Y1 if the facility is operating well. Both fee & margin are open to some debate, depending on level of business etc. You should not be on Prime (AIB, I'd guess ?), you should be on a margin over Euribor btw (0.5% less ;))




MissRibena said:
You need to have a good debtor spread and be pretty good at collecting money on time. As the bank will have loads of rules for ruling out various debts for one reason or another (e.g. any customer of 10% of ledger value, any debt over 60 days). Be sure to haggle with them over the % of the ledger that they will advance as this should be negotiable. I've seen them try to advance 50% initially and wind up going with 75%.
Click to expand...

* A good, well managed debtors list is the key to this facility. Keep your credit control tight, under 90 days, consider insuring some debtors if they are taking large sums of credit from you (helps reduce the risk, so your ID facility should be cheaper & you have protection !).

* Most ID houses now discount for up to 90 days credit & one can get 80% of the debt up front via discounting, assuming the debtor is good quality & well managed



MissRibena said:
IMHO, it would be better not to have it but if you're in a growing company that needs the cashflow then it is not a bad way to finance it.

Rebecca
Click to expand...

* I disagree with this comment, to be honest. The facility is excellent in certain circumstances such as:

- no alternative security available (no freehold premises to mortgage etc)
- a business which is growing quickly, the credit available is driven by the level of trade (assumnig its well managed)

An MBO is one perfect example of when ID can be used successfully - the attraction being it might be used to offer release of funds from both the acquiring company & the business being acquired (a double hit you might say ;))

Good luck with it :)

Regards


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Thanks for all the Help - Bank coming in for a meeting tommorow will let you know how its goes
 
Hi TtV2004,

just wondering how this went / is going ? ... any joy ? :)

Cheers

G>
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The bank have sent in a surveyor today and she appears happy that all is ok. They are to send an offer tommorow but so far all looks very positive.
Some of the finer detail in relation to fees and the interest rate need to be agreed but they seem willing to sit down and discuss these.

Thanks again for all the help - will keep you informed
 
Hope it continues to go well for you,

- no matter what the fees & rates are, try haggling a bit, there is nearly always some room to move with the banks (assuming the credit line is reasonably sizeable) ;)

Cheers

G>
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