How to safeguard your funding
Here at Credebt we know that most Invoice Finance Companies have one burning question: is our Funding safe?
The good news is that the answer to that question can be a resounding YES, if you follow the correct procedures and get us to help you.
And if the answer is NO, it is important to know this as soon as possible, so that you can still do something about it. Not when it’s too late and you have to write off your Position.
So let’s have a look at the actions you need to take and how we can help during the various stages of the client lifecycle, from On-boarding, to In-Life to End-of-Life.
Stage 1: On-Boarding
1. Pre-Funding Reviews
Before offering a client any funding, you need to do a pre-funding review. Credebt will visit the business and audit the Debtors and Order to Cash process to assess the collectability of the Ledger and produce a report that states this in plain English.
This service is free to our clients as we offer this as a relationship building service. We can even help when assistance is needed by the business to tidy up the Ledger and collect in overdue Debts prior to funding.
Case Study: Pre-Funding Review
A £2m turnover Manufacturing Company was looking for a £300K facility
Facts: We were referred into the business by the BDM as a review was required prior to Funding, and there were issues with the level of Overdue Debt, which would cause issues with the Customer passing Credit. The 90-day plus Debt was £212K from a total Ledger Balance of £587K. Instructions were to carry out our usual review and also look at ways the business could reduce Overdue Debt.
Actions: Credebt visited the business and reviewed the Order to Cash process. Three main Debtors were causing the overdue issue, so we looked into the reasons why this was happening. We discovered that correct supporting paperwork was not being supplied on time, as the deliveries had been outsourced to a third party. That company was not sending timely information to the Customers to support the invoices. We assisted the business with rectifying this situation and helped them clear the Overdue Debt.
Results: within 4 weeks £189K of the Overdue Balance had been cleared and the third-party company had been given Notice of Termination due to poor service. After 6 weeks the Ledger was as clear as possible and a new Process was in place, so that the business looked far more attractive to the Funder, and therefore the Facility was put in place.
2. Switching Support
In some cases, the best course of action is to switch support, either to a different Funder or to a different type of funding.
Credebt can assist with Facility Switches by carrying out Verification work, offering outsourced Credit Control as well as assisting businesses with Staff Recruitment, Credit Policy and Procedures design and implementation and anything else that is asked of us.
Case Study: Switching Support
A £80m turnover Recruitment Company moved from a Full Back Office Support Facility to Confidential Invoice Discounting, whilst also switching provider.
Facts: Credebt were referred into the business by the Corporate Team, as the business was switching from one Invoice Finance Bank to another, and was also moving from Full Factoring, including Payroll and Invoicing, to Confidential Invoice Discounting.
The group or recruitment companies was operating in 36 countries and had seen rapid growth to a turnover of £80m, with an £11m Facility.
Actions: the instructions were to verify the Debt, investigate and implement Process improvements and liaise with the business to assist with Staff Training and Process and Policy design to ensure they could deal with the Credit Control, raising invoice, Payroll and all other aspects of the facility, as they would be dealing with this in house for the first time.
We carried out an extensive verification exercise to ensure the new Funder was comfortable with the level of verified Debt prior to the switchover date. We investigated the internal Order to Cash process and assisted with Process design to ensure robust internal Processes in place, ready for the switchover.
Results: the switchover went smoothly, and we kept in regular contact afterwards to ensure this was still the case.
Stage 2: In-Life
3. Sorting out messy situations
Not everything goes smoothly all the time, and sometimes your client ends up with a messy situation that needs sorting out.
This is an area where we can demonstrate our extensive expertise and achieve exceptional outcomes.
Credebt can Collect In part of the Ledger, work on improving Query Resolution Systems, review and improve the Order to Cash process and ensure that the business is Invoice Finance compliant at all times.
This leads to a significant overall Ledger improvement going forward, meaning the business is less likely to be asking for overpayments, breaching covenants or having large amounts of disapproved invoices. This generally repairs the relationship between the Funder and their Client.
Case Study: sorting out a messy situation
A loss-making £22m turnover Toiletries Business was streamlined and supported to operate successfully themselves.
Facts: the business owed £3.2m on the Invoice Finance Facility and had a £1m overdraft. The business had grown from £12m to £22m in 12 months and made a substantial loss while doing so as internal controls were extremely poor.
The instruction by the Bank Invoice Finance Team and the Main Bank was to get the Ledger Management under control and reduce the overdue Debt as soon as possible. Once this was completed it was agreed that we would create a Credit Policy and Procedures Manual and assist with the implementation of it, as well as Staff Recruitment.
Actions: Credebt took over the Ledger in its entirety and spent 3 months maximising the Cash Collection, whilst reviewing and reducing all bottlenecks within the Order to Cash process.
Two members of our team were on site several times a week to work through queries, and we obtained remote access to invoicing, POD and Bank systems.
We engaged directly with the company at no cost to the Invoice Finance Company. We met with some of their largest customers to assist with Query Resolution and set up an adequate Query Management System.
We reported daily for the first month and weekly after that. For the first 4 weeks we also had a conference call or physical meeting every morning at 10am to go through the issues, and at least twice per week after that.
Results: In 3 months we collected £9m, whilst reducing the Invoice Finance Facility down to £1.8m, and reducing Queried Invoices from £1.5m to £212K.
We wrote the Credit Policy and Procedures, which ensured that the Company was Invoice Finance compliant. We assisted with monthly reconciliations and repaired the relationship between the Company and the Invoice Finance provider. We assisted with the recruitment of two Credit Control staff, including doing the interviews.
We exited the business after nearly 4 months as they were now in a position to successfully cope themselves.
4. Debtor Collateral Review
If ever you are in any doubt about your Position, you’ll need to do a Debtor Collateral Review to find out exactly where you stand.
Credebt will visit the business and audit the Debtors and Order to Cash Process to assess the collectability of the Ledger. We will produce a report that states this in plain English.
We will analyse what type of business we are dealing with. For instance, is it POD d, Time Sheet or Purchase Order driven? We will ensure that the invoices being uploaded to the Invoice Finance system are compliant and therefore should get paid.
If required, we can then offer a Verification Service as part of this process. We will not leave the site until we are comfortable that we have all the evidence we need to provide the Funder with the comfort that their Funds are safe. Or we will report immediately if we have found anything of concern, together with our proposals as to what needs to be done about it.
This can sometimes uncover the need for further action, which we can agree and implement quickly and effectively in all instances.
Case Study: Debtor Collateral Review
A £10m turnover Accident Repair Company was managed away after committing Fraud.
Facts: the company had a £1.1m Ledger with £780K owed to the Invoice Finance Facility. The last Audit had come back with some concerns around the invoicing process so the Funder wanted to make sure their Capital was safe. The Client had only been with the Funder for 7 months, but had already accumulated a substantial 90-day-plus Debt of £280K.
Actions: Credebt visited the business and audited the Ledger, the Order to Cash Process and the Company records. We discussed the overdue issues with the existing Credit Control staff.
We checked all invoices and back up for the top 10 Debtors which made up 85% of the Ledger value and 100% of the 90-day-plus Debt.
Results: Credebt uncovered £240K of ‘Fresh Air Invoicing’ (Fraud!) that the relatively new Finance Director had put through the facility 6 months earlier, in order to bridge a gap in cashflow. He was slowly trying to repay this to cover up the issue.
We immediately reported this to the Funder, who then considered appointing Administrators instantly. We suggested they try to manage away to an alternative Funder.
We fully disclosed the Position to the alternative Funder who took on the Company less than 3 weeks after our initial findings.
All this was done at no cost to the Funder, as we would have only charged a fee if this had moved into a Collect Out scenario, and even then it would have been on a no-win-no-fee basis for Collections from the Ledger.
Stage 3: End-of-Life
5. Preparation for Collect-Out
When the worst happens and a Company goes into Liquidation or Administration, it is paramount that the Debt is as clean and collectable as possible.
Credebt will visit the business and audit the Debtors and Order to Cash Process to assess the Collectability of the Ledger. We will produce a report that states an expected amount that can be recovered.
Once the Audit and the Assessment have been completed, Credebt can work to tidy up the Ledger by agreeing all write-offs, Contras and Credit Notes due, as well as resolving all disputes to ensure the Ledger is as clean as possible prior to Insolvency.
Case Study: preparing for Collect-Out
A £7m turnover Print Company ceased trading and moved into Collect Out
Facts: The Company owed £700K to the Invoice Finance Company on a £912K Ledger. We came in on the day the Company ceased trading and staff were being made redundant.
Our instruction from the Bank Invoice Finance Team and the Insolvency Practitioner was to collate the books and records, take system back-ups and see if any staff could be retained to help with the Collections.
Actions: Credebt visited the business a total of six times between the ceased trading date and the meeting of the Creditors (a 3-week period) to collate all books and records, with the assistance of one retained member of staff.
The business systems were due to be shut down imminently for non-payment of bills, so we needed to act quickly to obtain all that was required.
We took hard copies where required, and forwarded nearly 1,500 emails to ourselves so we would be fully aware of all potential issues.
We also worked Work In Progress through their system to maximise the Ledger amount, which resulted in a further £260K being billed.
We started Collections immediately to maximise cash collections.
Results: By the time the business entered into Liquidation we had collected £189K, as well as getting all Work In Progress invoiced, which resulted in a greatly improved Position from day 1 of the Insolvency.
At the time of the meeting of Creditors, £511K was owed on a £970K Ledger. We collected the remaining £511K plus the £48K Termination Fee within 62 days of the Insolvency. We then collected a further £372K after the Ledger was re-assigned to the Insolvency Practitioner.
Our Fee for doing this was 7.5% of the Total Collected, but it was charged to the Insolvency Firm on re-assignment, so there was no cost to the Invoice Finance Provider.
Once a Client has moved into a Collect Out situation, you need to move decisively and effectively to maximise Debtor repayments.
Credebt can do this for you on a no-win-no-fee basis with a range of options, including:
When we’re involved the Collect Out is usually completed within 90 days of instructions, and includes the collection fo all books and records required, no matter how many visits it takes.
Collect Outs with our unique Bad Debt Protection cover default and insolvency of Debtors.
Case Study 1: Collect Out
Collect Out for a £5m turnover Packaging Company with Credebt Protect
Facts: The Invoice Finance Company was owed £635K on a £787K Ledger. The business ceased trading on the day of our first visit, and staff were being made redundant.
The Instruction form the Bank Invoice Finance Team was to collate all books and records, as well as system back-ups.
Actions: Credebt visited the business and collated books and records. We took back-ups of the Sage systems and completed all of this in one day.
We took hard copies of all invoices as the Sage copies didn’t have the Company Logo and other details on them, and there were some difference between the invoice main system and Sage.
We took control of the non-notifiable Debt of £90K and started Collections immediately to maximise cash collections.
Results: the full Collect Out was completed within 77 days. The Funder decided not to charge a Fee as the Collection had gone well and the Directors had been cooperative.
£242K was re-assigned to the Insolvency Practitioner, although realistically only about £50K of the remainder was collectable.
Case Study 2: Collect Out
Collect out for a £1.5m turnover Technology Company with Credebt Protect +
Facts: The Invoice Finance Company was owed £187K on a £250K Ledger.
The instruction from the Invoice Finance Provider was to collate all books and records and system back-ups to prepare for Collect Out. They also looked to obtain Bad Debt Protection against all Debtors due to concerns over certain Debtors.
Actions: Credebt visited the business and collated all books and records. We obtained Credit Limits for all Debtors owing over £750. We started Collections immediately to maximise cash collections.
Results: we collected £187K within 47 days and the Finance Provider was repaid in full.
The Funder decided not to charge a Fee as the collection had gone well and the Directors had been co-operative.
£63K was re-assigned to the Insolvency Practitioner, although realistically only about £47K of the remainder was collectable due to valid queries, etc.
The £47K was collected for the Insolvency Practitioner for the benefit of the Creditors. One payment of £38K was only possible because of the Bad Debt Protection. The threat of claiming via the underwriter on the Policy would have affected their Credit Rating and the Company paid up.
How can we help?
As a UK Finance affiliate member, we create optimal outcomes for Funders and their Clients.
Please do not hesitate to get in touch if we can support in any way, in total confidence.
Or arrange your free Debtor Collateral Review to find out your Position.
Call us on 0845-6385256 or email firstname.lastname@example.org