Invoice finance explained
- 1. Invoice F inance - E xp laine d D avid We b b Bib b y F inancial S e rvice s
- 2. Age nd a • Invoice F inance E xp laine d • B as ic crite ria • P rod u ct ove rvie w – h ow it works • C om p aris on to oth e r form s of finance • Wh at we ne e d to as s e s a d e al • D e al te rm s • Working toge th e r • C ontractu al F inance – Th e C ons tru ction Ind u s try • Working inte rnationally
- 3. Bas ic Invoice F inance C rite ria • Bu s ine s s to Bu s ine s s • C om p le te d Works (C ons tru ction an e xce p tion) • Invoice d in Arre ars • Te rm s of Trad e offe re d • S o h ow d oe s it work?
- 4. Invoice F inance P rod u cts - jargon b u s te rs • F actoring • D is clos e d - Th e clie nts cu s tom e rs are aware of th e factor • C onfid e ntial - Th e clie nts cu s tom e rs are u naware of th e factor • R e cou rs e - Any los s e s d u e to cu s tom e r failu re to p ay are at clie nts ris k • N on re cou rs e - Bad d e b t p rote ction is inclu d e d with in facility • CHO CS - C lie nt p e rform s own cre d it control fu nction • Invoice D is cou nting • Disclosed - The clients customers are aware of the discounter • Confidential - The clients customers are unaware of the discounter S e e fu ll ind ivid u al p rod u ct d e s crip tion m ate rial
- 5. Wh at we ne e d to as s e s a d e al • E xe cu tive s u m m ary • Age d d e b tors and cre d itors analys is • F inancials (m os t re ce nt accou nts , m anage m e nt figs ) • E xam p le Au d it Trail (P u rch as e ord e r th rou gh to invoice )
- 6. Te rm s of th e d e al • S e cu rity – D e b e ntu re , F actoring Agre e m e nt, P .G ’s • Ad vance Le ve l – P e rce ntage ad vance agains t invoice s • C os t and typ e of C h arge s – S e rvice F e e and D is cou nt % • C ontract le ngth - P e riod of agre e m e nt
- 7. P op u lar Ind u s trie s for Invoice F inance • R e cru itm e nt • Trans p ort • P rinting • M anu factu ring • D is trib u tion • Bu s ine s s S e rvice s • C ons tru ction
- 8. S u cce s s S torie s • R e cru itm e nt • Trans p ort • P rinting • M anu factu ring • D is trib u tion • Bu s ine s s S e rvice s
- 9. How does invoice financing measure up? F u nd ing com p aris ons Invoice finance As s e t b as e d le nd ingO ve rd raft Loan (F actoring and invoice d is cou nting ) Am ou nt of cre d it U p to 90% of you r F rom 60% - 80% By ne gotiation – By ne gotiation availab le invoice s availab le of th e as s e t s om e tim e s lim ite d im m e d iate ly. T h e valu ation to 50% of b ook b alance (m inu s ou r d ebt fe e s ) is p ayab le late r F le xib ility You r facility m ay F or s tock, th e Lim its can b e F le xib le b u s ine s s grow in line with am ou nt availab le incre as e d , b u t th is loans allow e arly you r s ale s m ove s in line with incu rs e xtra cos ts . re p aym e nts you r b u s ine s s Typ ically re - with ou t p e naltie s ne gotiate d once a ye ar S e cu rity re qu ire d O n you r invoice s Typ ically, s e cu rity Typ ically re qu ire s Typ ically re qu ire s and in s om e is only re q u ire d on s e cu rity, wh ich s e cu rity, wh ich cas e s , m od e s t th e as s e t m ay inclu d e a m ay inclu d e a p e rs onal ch arge on p rop e rty ch arge on p rop e rty gu arante e s and / or frau d warrantie s
- 10. Working Toge th e r • C om m is s ion p ayab le
- 11. Any Q u e s tions ?
- 12. F u nd ing in th e C ons tru ction S e ctors
- 13. Th e U K C ons tru ction Ind u s try • UK larges t indus try s ec tor • E mploys over £2m people • £100bn of turnover • E very £1 s pend in c ons truction = £2.84 inc reas e in UK G DP • Hard hit by rec es s ion in las t 24 months • G rowth dependent on G ovt inves tment (but whic h party? !) • 2010 – looks more pos itive • Various tiers of c ontrac tor / hundreds of S ME contrac tors
- 14. Wh at is C ons tru ction ? C ons is ts of various s ectors (with numerous trade bodies ): • R e tail, O ffice s , Ind u s trial • U tilitie s , R oad s , R ailways • S ocial H ou s ing • G ove rnm e nt P roj cts e • S p e cu lative D e ve lop m e nts Within thes e individual s ectors there are: • N e w Bu ild & R e fu rb is h m e nt P roj cts e • M ainte nance , R e p air & R e fu rb is h m e nt P roj cts e
- 15. H ow d oe s th e ind u s try work? Projects are contracted out in a chain or pyramid, for example : 3. The Olympics Development A uthority (ODA ) 5. Main C ontractor (Laing O’Rourke) 7. S ub C ontractor (Often B ibby C lient) 9. S ub-S ub C ontractor (Often Bibby C lient) The chain can go down many more tiers depending on the project
- 16. Ind u s try C ontracts – Th re e m ain F orm s 1. Lump S um Main C ontracts • S ubject to monthly valuation and certification • Lump S um S ub C ontracts S ubject to periodic valuation and certification can take s ome weeks • Term Main C ontracts or S ub C ontracts C ontracts let for a period of time and can be for many years
- 17. Is s u e s with fu nd ing th e cons tru ction s e ctor C ons truction is not a s ector favoured by the mains tream banks or indeed the invoice finance indus try (except Bibby!)…….but why? • Not always eas y to unders tand / as s es s ris k on nature of trade • Long term contracts with onerous claus es • Debt is not “ s ell and forget” • C omplexity of the debt – contractors often run more than one ledger • Interim billing that may only be an approximation • Management of contracting ledgers internally • S ubject to UK C IS S cheme • S tandard indus try deductions – retention, MC D, C IS tax
- 18. C ons tru ction F inance P rod u ct – D e finition Funding to contractors by offering a percentage advance (up to 70%) agains t invoices and/or uncertified applications for payment throughout the life of a contract and/or order
- 19. P rod u ct O ve rvie w • Releas e of funding agains t uncertified applications • C onfidential, i.e. cus tomers not aware of B ibby’s involvement • Funding complimentary with mos t indus try contracts • Fas t track product for s maller contractors • S pecialis t B ad debt protection • Dedicated management unit
- 20. H ow d oe s it work? 1. Review of contractor bus ines s by B ibby s pecialis t B DM and/or QS 2. Gain clear unders tanding of trade s ector / billing proces s es 3. A s s es s funding need 4. A s s es s our advance level agains t applications (bas ed on s ector / ris k) 5. A dvance up to 70% agains t uncertified applications (often confidentially) 6. Manage client in dedicated cons truction team 7. S hadow running of client contracts by our team = vis ibility / trans parency 8. E mbrace the s ector in which our clients operate This all res ults in fully informed “ indus try” advis ed lending into the cons truction s ectors
- 21. Wh o can we h e lp ? • C ontractors from s tart up to £50m+ turnover • Funding Requirement up to £3m • Mos t indus try s ec tors where we advanc e agains t billing • G rowing c ompanies with additional working capital needs • Often operating on res trictive bank or fac toring / ID fac ilities
- 22. Wh at d oe s a typ ical C ons tru ction clie nt look like ? • S ub contractor working for a main contractor / employer • Operating under s tandard indus try contracts and C IS S cheme • S ubmits weekly / monthly applications & waits an age to get paid • Has a working capital need not being s olved by exis ting provider • Needs a more flexible “ indus try led” funding product
- 23. Wh at s e ctors h ave we fu nd e d ? • Plas tering & Drylining • Painting & Decorating • E lectrical • C eilings & Partitions • S upply & Fit (Bathrooms , kitchens etc) • S hopfitting • Double Glazing • C ommercial Tiling • S caffolding • A ir C onditioning & Ventilation A nd many others ………
- 24. F acility te rm s • A dvanc e Levels • S ecurity • A greement Length • C harges
- 25. C ons tru ction F inance In Action £16m Turnover Refurbis hment C ontrac tor - £500k C o nfid e ntial C ons tru ctio n F inance F acility R e finance from e xis ting fu nd e r p rovid ing ad d itional working cap ital facilitie s agains t u nce rtifie d ap p lications for p aym e nt to facilitate b u s ine s s growth and p aym e nt o f s om e h is toric trad e cre d itor b alance s £15m Turnover E lec trical C ontrac tor £500k C onfid e n tial C ons tru ction F in ance F acility - R e finance from e xis ting fin ance p rovid e r incre as ing workin g cap ital facilitie s agains t invoice s and ap p lication s for p aym e nt to s u p p ort th e financing of ne wly won co ntracts £1m Turnover Painting & Dec orating C ontrac tor - £1 00k C onfid e ntial C ons tru ction F inance F acility Incre as e d facility ove r e xis ting b ank ove rd raft to p rovid e ad d itional wo rking cap ital to e nab le contracts to b e te nd e re d for and u ltim ate ly s e cu re d
Editor's Notes
- #13: INTRO