Understanding Invoice Finance

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Chastity Charlene Sutton
8 years ago
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1 Understanding Invoice Finance

2 Introduction John Mackey Senior Business Development Manager Ronan Horgan Managing Director

3 Content What is Invoice Finance? Industry Background Who can avail of Invoice Finance? What are the benefits? How does it work? Invoice Finance Products Main terms of an IF agreement? Case Study

4 What is Invoice Finance? An immediate and on-going supply of funds against outstanding invoices

5 Invoice Finance Brief History Originated in US 1950 s Developed in UK from 1960 s By 1980 s Invoice Finance well established in the UK Market Invoice Finance became recognised as an important alternative and flexible form of funding for businesses Saving valuable Management time for the client ABFA (FDA) established 1996, representing Invoice Finance Providers in UK & Ireland

important alternative and flexible form of funding for businesses Saving valuable Management

6 Who can avail of Invoice Finance? Types of Businesses Businesses trading B2B Trading on Credit Terms New Starts Mature Businesses Sell & Forget Business Structures LIMITED COMPANY SOLE TRADER PARTNERSHIP Haulage Manufacturing Key Sectors Distribution / Wholesale Services

New Starts Mature Businesses Sell & Forget Business Structures

7 What are the benefits of Invoice Finance for Exporting Businesses Flexible funding solution Immediate & ongoing access to funds, enabling clients to grow their business Full Multilingual Credit Control service Sales Ledger Management Saving valuable Management time for the client Facilities can be tailored to the business cash need. Funding on invoices can be released at time of shipping. Funding recourse of up to 120 days longer credit terms in some European Countries.

Saving valuable Management time for the client Facilities can be tailored to the business cash need.

8 Industry Sector in Ireland Industry sector number of clients using Invoice Finance 2013: Industries No. of Clients Manufacturing 373 Distribution 780 Transport 88 Retail 52 Construction 26 Other 157 Total 1963 (25% Exporting) These figures were taken from the ABFA Industry Statistics Report Q4 2013

of Clients Manufacturing 373 Distribution 780 Transport 88 Retail 52

9 How does Invoice Finance work? Step 1 The client invoices the debtor for goods sold. Client sends a copy of the invoice to the Invoice Financier. Service fee is deducted. Invoice Financier INVOICE COPY Debtor INVOICE Client

10 How does Invoice Finance work? Step 2 Invoice Financier typically give the client up to 85% of the value of the invoice immediately. Invoice Financier 85% Debtor Client

11 How does Invoice Finance work? Step 3 Invoice Financier can chase invoice payment from the debtor or the client may opt to chase themselves. Invoice Financier INVOICE CHASE Debtor Client

12 How does Invoice Finance work? Step 4 The debtor pays the Invoice Financier the amount on the invoice in full either direct or into a trust account. Invoice Financier 100% Debtor Client

13 How does Invoice Finance work? Step 5 Invoice Financier gives the client the remaining 15% Invoice Financier 15% Debtor Client

14 Bad Debt Protection Explained In addition to Invoice Finance: Client can avail of Bad Debt Protection Protects the client from the risk of suffering a bad debt Provides protection on outstanding invoices Enables the IF to provide funding on debts for longer periods Allows the IF to make additional funding available on highly involved debtors All administration managed by IF Disclosed

outstanding invoices Enables the IF to provide funding on debts for longer periods Allows the IF

15 Case Study Cloth Manufacturing Business Exporting to Mainland Europe, largest customer in Italy. Opportunity to double trade levels with largest customer. Current cash flow and banking facilities will not fund this potential growth approx. 75% year on year. Existing debtors ledger of 450k funding limit of 600k with prepayment rate of 75%. Turnover to grow from 1.7m to 3m with aid of facility. Net profit margin to grow from 4.4% to 6.4%.

Current cash flow and banking facilities will not fund this potential growth approx. 75% year on year.

16 Cash flow without Invoice Finance Facility Cashflow Without Facility (including potential growth): Month Turnover Receipts Inflow Outflow Monthly Cumm

200 220 250 250 250 Inflow 150 150 150 150 150 150 170 200 220 250 250 250 Outflow 145 145 145 460 210 230 240

17 Cash flow with Invoice Finance Facility Cashflow With Facility: Month Turnover Receipts Inflow Outflow Monthly Cumm

220 250 250 250 Inflow 150 150 150 502 187 202 230 237 242 250 250 250 Outflow 145 145 145 460 210

18 Cash flow without Invoice Finance Facility Cashflow Without Facility (with standard growth of 10%): Month Turnover Receipts Inflow Outflow Monthly Cumm

150 150 160 160 160 160 160 160 Inflow 150 150 150 150 150 150 160 160 160 160 160 160 Outflow 145 145 145

19 Profit & Loss Statements Notes: Profit & Loss Statement 1. No change in Gross Margin (40%) With Facility: Year Sales 1,700 3,000 Gross Profit 680 1,200 Net Profit k Without Facility: Year Sales 1,700 1,900 Gross Profit Net Profit 75k 85k

1,700 3,000 Gross Profit 680 1,200 Net Profit 75 192k Without

20 Summary Benefits of Invoice Finance to Funding International Growth Alternative Funding Solution No fixed asset security required Flexibility in Funding tailored for individual businesses Multilingual Credit Control Service Provides cash flow for growing business Accelerates growth of business Facility grows in line with business growth

for individual businesses Multilingual Credit Control Service Provides cash flow for

21 Thank You

Understanding Invoice Finance

Understanding Invoice Finance Agenda Introduction ABFA Jargon Busting What is Invoice Finance Factoring Invoice Discounting Invoice Finance Products Who uses Invoice Finance? Main terms Advantages & Disadvantages