Traditionally companies turn to their bank to raise cash. However securing company finance in the form of an overdraft or loan can be difficult. Where this is the case alternative forms of funding can be considered.
- Is Asset Refinancing available for your Company?
- How does Invoice Factoring and Discounting work?
- What is Trade Financing?
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Asset refinancing is the process of borrowing cash against the value of company assets. Money is lent against valuable items which the company already owns such as equipment, machinery or property. It is similar to where an individual can release equity by re-mortgaging their house.
The amount of cash that can be borrowed depends on the value of the assets. Normally it will be up to a maximum of 70% of the value depending upon the underlying credit strength of the business. The value is established by a reputable independent valuer.
Assets that are already encumbered can also be refinanced as long as the existing finance company is paid off as part of the process.
Invoice Factoring and Discounting
Invoice Factoring is the process of raising cash against outstanding company invoices. It can allow a company to borrow up to 90% of the invoice value as soon as it is issued.
The process normally involves the factoring company taking over the whole invoicing and credit control function. The amount of cash which can be borrowed will depend on things like the payment terms agreed and the profile of the debtors.
A more discrete method of raising cash against invoices is invoice discounting. Here the company retains the responsibility for its own billing and cash collection. Less cash is normally made available using this method as the factoring company has less control.
Trade Finance allows a company to borrow cash against a confirmed order. Generally this type of finance is used to pay suppliers required to fulfil the order. The finance company will normally pay suppliers directly.
Once the order is fulfilled and accepted the finance company will invoice the customer and collect payment. Any funds remaining after the finance has been paid is then returned to the company.
Trade Financing options are not only useful for companies which are on a reasonable financial footing. They can also be considered in support of a business rescue solution such as a Pre Pack.