Understanding Invoice Finance
Introduction
John Mackey – Senior Business Development
Manager
Ronan Horgan – Managing Director
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
What is Invoice Finance?
An immediate and on-going supply of funds
against outstanding invoices
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
Who can avail of Invoice Finance?
Business Structures
SOLE TRADER
LIMITED COMPANY
PARTNERSHIP
Key Sectors
Haulage
Manufacturing
Distribution / Wholesale
Services
• Businesses trading B2B
• Trading on Credit Terms
• New Starts
• Mature Businesses
• Sell & Forget
Types of Businesses
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.
Industry Sector in Ireland
Industry sector number of clients using Invoice Finance 2013:
•These figures were taken from the ABFA Industry Statistics Report Q4 2013
Industries No. of Clients
Manufacturing 373
Distribution 780
Transport 88
Retail 52
Construction 26
Other 157
Total 1963 (25% Exporting)
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
Client
Debtor
INVOICE
INVOICE
COPY
How does Invoice Finance work?
Step 2
Invoice Financier typically give the client up to 85% of the value of
the invoice immediately.
85%
Invoice
Financier
Client
Debtor
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
CHASE
Invoice
Financier
Client
Debtor
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.
100%
Invoice
Financier
Client
Debtor
How does Invoice Finance work?
Step 5
Invoice Financier gives the client the remaining 15%
15%
Invoice
Financier
Client
Debtor
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
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%.
Cash flow without Invoice Finance Facility
Month 1 2 3 4 5 6 7 8 9 10 11 12
Turnover 150 150 150 170 200 220 250 250 250 250 250 250
Receipts 150 150 150 150 150 150 170 200 220 250 250 250
Inflow 150 150 150 150 150 150 170 200 220 250 250 250
Outflow 145 145 145 460 210 230 240 240 230 230 225 220
Monthly 5 5 5 -310 -60 -80 -70 -40 -10 20 25 30
Cumm 15 20 25 -258 -345 -425 -495 -535 -525 -505 -480 -450
Cashflow Without Facility (including potential growth):
Cash flow with Invoice Finance Facility
Month 1 2 3 4 5 6 7 8 9 10 11 12
Turnover 150 150 150 170 200 220 250 250 250 250 250 250
Receipts 150 150 150 150 150 150 170 200 220 250 250 250
Inflow 150 150 150 502 187 202 230 237 242 250 250 250
Outflow 145 145 145 460 210 230 240 240 230 230 225 220
Monthly 5 5 5 5 -23 -18 -10 -3 12 20 25 30
Cumm 15 20 25 67 43 25 15 12 24 44 69 99
Cashflow With Facility:
Cash flow without Invoice Finance Facility
Month 1 2 3 4 5 6 7 8 9 10 11 12
Turnover 150 150 150 160 160 160 160 160 160 170 170 170
Receipts 150 150 150 150 150 150 160 160 160 160 160 160
Inflow 150 150 150 150 150 150 160 160 160 160 160 160
Outflow 145 145 145 145 145 145 150 150 150 150 150 150
Monthly 5 5 5 5 5 5 5 10 10 10 10 10
Cumm 15 20 25 30 35 40 45 55 65 75 85 95
Cashflow Without Facility (with standard growth of 10%):
Profit & Loss Statements
Profit & Loss StatementNotes:
1. No change in Gross Margin (40%)
With Facility:
Year 2013 2014
Sales 1,700 3,000
Gross Profit 680 1,200
Net Profit €75 €192k
Without Facility:
Year 2013 2014
Sales 1,700 1,900
Gross Profit 680 760
Net Profit €75k €85k
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
Thank You