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