'Selective Invoice' or 'Spot' Factoring
Discussion
Never been involved with invoice discounting/factoring at all previously as my main works are construction related and as such have tended to be on 'application' basis, not 'invoice'.
We have however more recently set up a pure 'supply only' side to the business which would indeed work on an invoice basis, and am interested at factoring/discounting these invoices as would assist cashflow of the company, and allow more works of the same kind to be undertaken (as are generally high labour content, meaning office/workshop being open all hours, and the associated overtime costs associated with this).
As an example, we have a project awarded to build certain items at the rough value of 50k. This work will commence the 2nd week in March & take 3 weeks roughly, so be complete by the end of March. It will however be broken down into 2 or 3 invoices, so say 25k mid March, and the 25k balance at the end of March. Our client would ideally want to pay 60 days from end of month, however 45 would be achievable I suspect.
Does anyone have any knowledge of this service, the pro's/con's of it, and also rough idea of fee's involved ? The work is on a good margin, so assuming the fees aren't ridiculously high, then its something I wish to look into further.
We have however more recently set up a pure 'supply only' side to the business which would indeed work on an invoice basis, and am interested at factoring/discounting these invoices as would assist cashflow of the company, and allow more works of the same kind to be undertaken (as are generally high labour content, meaning office/workshop being open all hours, and the associated overtime costs associated with this).
As an example, we have a project awarded to build certain items at the rough value of 50k. This work will commence the 2nd week in March & take 3 weeks roughly, so be complete by the end of March. It will however be broken down into 2 or 3 invoices, so say 25k mid March, and the 25k balance at the end of March. Our client would ideally want to pay 60 days from end of month, however 45 would be achievable I suspect.
Does anyone have any knowledge of this service, the pro's/con's of it, and also rough idea of fee's involved ? The work is on a good margin, so assuming the fees aren't ridiculously high, then its something I wish to look into further.
I have experience of Invoice Discounting, and your project doesn't appear attractive from the viewpoint of the lender for several reasons:
It's a one-off project, so is more suited to an overdraft.
Too many potential delays: sign-off, snagging etc, and too many reasons for the end user to delay payment.
The Construction industry isn't suited to Invoice Discounting in any way, shape or form, mainly for the above reasons. ID (and Factoring) work when the sales are pure Business-to-business, on Terms which are usually no more than 60 days from invoice, although 90 days is possible, and the customers can be given a suitable credit limit.
I think you'll struggle to get anybody to fund your proposal on ID or Factoring.
It's a one-off project, so is more suited to an overdraft.
Too many potential delays: sign-off, snagging etc, and too many reasons for the end user to delay payment.
The Construction industry isn't suited to Invoice Discounting in any way, shape or form, mainly for the above reasons. ID (and Factoring) work when the sales are pure Business-to-business, on Terms which are usually no more than 60 days from invoice, although 90 days is possible, and the customers can be given a suitable credit limit.
I think you'll struggle to get anybody to fund your proposal on ID or Factoring.
Dermot O'Logical said:
I have experience of Invoice Discounting, and your project doesn't appear attractive from the viewpoint of the lender for several reasons:
It's a one-off project, so is more suited to an overdraft.
Too many potential delays: sign-off, snagging etc, and too many reasons for the end user to delay payment.
The Construction industry isn't suited to Invoice Discounting in any way, shape or form, mainly for the above reasons. ID (and Factoring) work when the sales are pure Business-to-business, on Terms which are usually no more than 60 days from invoice, although 90 days is possible, and the customers can be given a suitable credit limit.
I think you'll struggle to get anybody to fund your proposal on ID or Factoring.
Thank you for your response, although not sure the queries raised are possibly relevant in this instance.It's a one-off project, so is more suited to an overdraft.
Too many potential delays: sign-off, snagging etc, and too many reasons for the end user to delay payment.
The Construction industry isn't suited to Invoice Discounting in any way, shape or form, mainly for the above reasons. ID (and Factoring) work when the sales are pure Business-to-business, on Terms which are usually no more than 60 days from invoice, although 90 days is possible, and the customers can be given a suitable credit limit.
I think you'll struggle to get anybody to fund your proposal on ID or Factoring.
With regards to it being a one-off project, well it it, at the moment, however likely to be more of them. Isn't the point of 'Spot' factoring however doing individual invoices & not your whole turnover ?
Potential delays. The goods will be drawn up by ourselves & then signed off by the client prior to going into production. They will then be delivered to site, and signed off there & then, again by the client, allowing the invoice to be raised if all ok. As such, I don't believe the problems you speak about are relevant to this.
Re Construction Industry, I agree with your comments that factoring/discounting is not suited to this industry, especially for subcontractors. However don't see why it is any different to any other industry really when your operating as purely a supplier. I suspect most labour agencies providing labour to construction factor their debts, as I suspect do many builders merchants. The goods both these provide can be queries/snagged as such at time, but that doesn't stop it from being ok.
It was more feedback specifically to 'spot or selective invoice' factoring/discounting I am after, as appreciate that I have no interest in putting my whole turnover through such a company.
Thanks again.
The issue of "selective" ID or Factoring will be another turn-off for a financier, as all standard agreements are whole turnover, unless specifically agreed by the financier.
Agencies supplying labour are bread and butter for ID or Factoring, and there aren't many issues for the financier as the invoices are always supported by signed timesheets, so there's an audit trail. Obviously, CIS is a major consideration, but any agencies operating in the construction industry are likely to be well versed in any current requirements.
Builders' merchants will supply a variety of customers, including the general public, and ID or Factoring will only fund B2B sales so sales to the public will be excluded. Generally the financier will set a basic credit limit for small customers, for example £5k, and anything above this will require an agreed limit, and to be brutally honest many customers in the construction sector aren't that credit-worthy.
Some smaller factoring companies will consider the more adventurous proposals, but in recent years the market has become much more risk-averse, due to bitter experience, and in general terms any proposal other than basic and straightforward is likely to be considered unattractive. That's how the market is these days.
Agencies supplying labour are bread and butter for ID or Factoring, and there aren't many issues for the financier as the invoices are always supported by signed timesheets, so there's an audit trail. Obviously, CIS is a major consideration, but any agencies operating in the construction industry are likely to be well versed in any current requirements.
Builders' merchants will supply a variety of customers, including the general public, and ID or Factoring will only fund B2B sales so sales to the public will be excluded. Generally the financier will set a basic credit limit for small customers, for example £5k, and anything above this will require an agreed limit, and to be brutally honest many customers in the construction sector aren't that credit-worthy.
Some smaller factoring companies will consider the more adventurous proposals, but in recent years the market has become much more risk-averse, due to bitter experience, and in general terms any proposal other than basic and straightforward is likely to be considered unattractive. That's how the market is these days.
While the construction industry is difficult to finance through "normal" Invoice discounting, you have a good chance of getting financed these days. There are more and more companies providing alternative finance in the UK, and if you operate on a decent margin, the end customer is creditworthy, spot factoring is an option for you.
If your tax affairs are in order and you have no judgements against you, you are very very likely to get funding!
Also check peer to peer lending if you think you will need "spot factoring" quite often as in the medium/long term spot factoring becomes very expensive
If your tax affairs are in order and you have no judgements against you, you are very very likely to get funding!
Also check peer to peer lending if you think you will need "spot factoring" quite often as in the medium/long term spot factoring becomes very expensive
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