Invoice Discounting (ID) is a very popular financial facility in Ireland with over 2,000 business using Invoice Discounting to fund their cash flow requirements.
Invoice Discounting is traditionally used to assist businesses grow however in recent times has also been utilised to fund MBO’s, Mergers and Acquisitions.
For Businesses with an existing Invoice Discounting facility or those thinking about availing of a facility for the first time, there are a number of key factors and parameters you need to consider:
It is essential that when negotiating a facility that you have a limit that is not only is sufficient for the level required today, but also for the foreseeable future. If your business is growing, then so is your debtors ledger which drives the availability of funds from the facility, so it is essential that you have a limit that allows your business to grow.
This is the percentage to which your funder will advance funds against your debtors ledger. The average rate would be 80% however some providers will advance up to 90%. This is equivalent of your LTV (Loan to Value) and the higher the percentage, the more funds you generate from the facility.
Generally providers will fund invoices up to 90 days from the date of invoice. Some debtors may seek credit terms beyond 90 days, so it is vital to understand the implications of the funding period
and how this can affect the funding available from a facility.
DEBTORS CONCENTRATION LIMIT
Ideally ID providers prefer a debtors ledger with no one debtor accounting for more than 30% of the overall ledger. However, sometimes businesses may have one debtor that makes up a large portion of the ledger. It is vital to find the right provider who will not restrict you on your debtor concentrations.
Some providers can be conservative in the level to which they will fund export debtors on the ledger (most providers will categorise UK debt as domestic debt). There are providers in the market who have no export debt thresholds in place and it is important to find a provider that will not restrict cash flow due to level of export debt you have.
Some providers will look to confirm balances either directly or indirectly with your customers; some will require you to complete monthly reconciliations. All of these actions cause unwelcome additional work load for the business, so businesses need to understand what the reporting and operational requirements are of their facility from the outset.
*Completely confidential – we don’t speak (directly or indirectly) to your customers
*Can release cash flow up to 90% prepayment on facilities
*Funding period for invoice standard of 120 days and can fund up to 150 days
*Not restrictive on debtor concentration limits – limits are based on debtor rating
*No restrictions on export debt
*No monthly reconciliation
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