Author: cms_Orchard

Spotlight On – Selective Invoice Finance

What is Selective Invoice Finance?

Selective invoice finance is an alternative to more traditional invoice finance where you must process all invoices through the facility.  This type of invoice finance facility is also known as single or spot factoring.  Selective invoice finance enables businesses to release funds tied up in individual unpaid invoices. By using the facility on an invoice to invoice basis, you are able to access funds quickly when and as cash injections are required.

How does it work?

It’s fairly straight forward and simple. The first step is to identify the invoice or invoices you wish to factor. Approval is then required for factoring the chosen invoices and the finance provider will confirm the fee. Dependent on your business sector you can receive up to 95% of the value of the invoice. The funds are normally available within 24 hours of invoice submission.  The invoice balance less the lenders fee is paid when the customers pays the invoice in full.

What are the differences between Spot, Single and Selective Invoice Finance?

There is no difference, all these terms are used to describe Selective Invoice Finance.

What are the advantages?

Selective Invoice Finance is often used to support cash flow at key points during the month. For example, to meet payroll and supplier payments. It can also be used for the purchase of business assets or just used to smooth out cash flow peak and troughs. The funds are available quickly and you are not tied into a twelve-month contract as with more traditional Invoice Finance.

What are the disadvantages?

It can be more expensive than traditional Invoice Finance Facilities where you are tied into a twelve- month contract and must process all sales invoices through the facility.

What businesses qualify?

This varies from lender to lender but normally all trading styles qualify although there are often requirements for a minimum level of turnover or projected turnover.

Can I apply with bad credit?

You can apply with bad credit but will still need to satisfy lenders underwriting criteria.

Development Finance – Case Study

Overview

Clients approached Orchard Business Finance on a Saturday morning informing us that they required a bridging loan or development finance to purchase a derelict residential property at auction the following Tuesday. This was no ordinary property, it had an interesting history and was being sold under the Proceeds of Crime Act 2002.

The guide price was £480,000 and the clients, due to time scales hadn’t conducted any of the due diligence that we would recommend when attending an auction. Including obtaining an independent valuation report; completion of structural surveys; legal searches; obtaining refurbishment/development costings; speaking with an architect; speaking with local estate agents to obtain comparable selling prices.

As a result there where lot’s of unknowns with this property and to make the situation more complicated the clients also required Planning Permission for one of their potential development schemes.

Action

We needed to produce a professional lending proposal that would be acceptable to potential lenders. This proposal need to include…

Financial Information

  • Build Costs
  • Professional Fees
  • Contingencies
  • Financial Appraisal
  • Cash Flows
  • Client Funds Available

Client Backgrounds

  • CV
  • Examples of Previous Developments
  • Credit History
  • Asset & Liability Statement (personal & business)
  • Details of Professional Team (solicitors, accountant, QS, architect, construction company)

Purchase Property 

  • History
  • Overview of Development
  • Structural Concerns/Issues
  • Planning Permission – What is Allowed

Funding Requirements

  • Funding Required for Purchase
  • Funding Required for Development Expenses
  • Exit Strategy

All this information was collated over the weekend and signed off by clients for presentation to lenders on the Monday morning.

Due to covid-19, remote working and current economic climate we approached an number of lenders initially by phone and then followed up with the lending proposal. It was explained that a quick yes or no funding decision was required along with level of funding that would be made available if the lender was happy to support the deal.

Outcome

As a result of the well presented lending proposal and credibility of the clients five lenders agreed to fund the purchase of the property. This allowed us to present the clients with a number of funding options, this helped them make an informed decision on how to proceed at auction.

The clients were able to attend the auction knowing the upper limit that they could bid for the property along with the financial implications of bidding over this limit. Sadly the clients were outbid by £5,000 as they had set an upper limit of £500,000.

On this occasion the client couldn’t proceed but I know that we have provided these clients with the highest levels of service and advice. This will ultimately result in them asking ourselves to help with any future development finance requirements.

Contact

If you are a property developer or prospective developer and would appreciate professional guidance and assistance in raising funds contact Orchard Business Finance on 01257 543013.

 

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