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• 08 Jul

  Deal Completed Factoring Replaces Reduced Bank Overdraft

  We have seen more and more examples of restrictions in bank overdrafts recently and this particular client experienced that same issue. The client was involved with plant and staff hire and they were looking for more working capital. Rather than increasing their overdraft their bank actually reduced their overdraft and after several weeks of considering them for a factoring facility (factoring is a type of invoice finance) were unable to release the additional working capital that they needed.

  We carried out a free, independent factoring quotation search for them and found them an alternative factoring facility that would make up the shortfall in their working capital funding requirements and provide funding for growth.

  It is often the case that factoring can provide more funding that would be available through bank overdraft as the factoring companies will look to your outstanding unpaid sales invoices as security rather than tangible assets such as property. In many cases factoring can be used in addition to bank overdraft in order to release addtional working capital. The bank who are providing the overdraft will often grant a "waiver" to a factoring company, releasing part of the company's assets i.e. their book debts, from any charge or debenture that the bank holds so that those book debts can be used by the factoring company to provide additional funding.

  There can be substantial differences between the level of funding generated from a bank overdraft and factoring. If you look at the part 1 summary of our market research, we found that funding from overdraft equated to 2.6% of debtor outstandings against 42% in the case of invoice finance.

  By Glenn Blackman