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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 â 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 â 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 â D e b e ntu re , F actoring Agre e m e nt, P .G âs
⢠Ad vance Le ve l â P e rce ntage ad vance agains t invoice s
⢠C os t and typ e of C h arge s â 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 â 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
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 â 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 OâRourke)
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 â 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!)âŚâŚ.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 â s ell and forgetâ
⢠C omplexity of the debt â 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 â retention, MC D, C IS tax
18. C ons tru ction F inance P rod u ct â 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 ibbyâs 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 â indus tryâ 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 â indus try ledâ 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 âŚâŚâŚ
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
ÂŁ1m Turnover Painting & Dec orating C ontrac tor - ÂŁ1 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