How to switch Invoice Finance providers

How to switch your current Invoice Factoring / Invoice Discounting provider 

Many businesses are seen to stay with their current provider for far too long as there is a misconception that by changing provider will be difficult and time consuming. It is this loyalty that some lenders will take advantage of. The reality is that businesses have been switching providers time and time again over the years and so the process is now very quick, simply and relatively pain free. The outgoing lender and incoming lender will complete the majority of the transfer between themselves leaving the business to get on with their day to day activities.

What is involved in the switching process?

Basically an incoming lender will complete a due diligence on the business and the book debts. If everything meets their criteria the lender will issue an offer letter. If the offer is acceptable then the transfer process can begin. The incoming lender will speak to the outgoing lender and will agree a date for the transfer to complete. The two lenders will manage the transfer on behalf of the business.

On the transfer date the incoming lender will undertake a funding calculation where they will work out how much they can generate from the debtor book on that specific date. The funding calculated will be used to repay the outgoing lender and the residual balance will be placed into the businesses new facility for future use.

Can anything go wrong during the transfer process?

On rare occasions things can go wrong and a transfer may not complete. There are a few main reasons why a transfer may not complete. These are

  1. The incoming lender may not be able to generate sufficient funding from the existing debtor book to repay the outgoing lender. In these instances depending on the level of the shortfall the incoming lender may just carry on with the transfer and the account will start in a negative. Alternatively All Star Funding Solutions can bridge the shortfall by means of a loan or other funding solution.
  2. The debtor profile changes since the due diligence process. This scenario can often occur where new debtors are taken on during the transfer process or in fact existing debtor profile may change from being creditworthy to not so credit worthy. Again the incoming lender will work with the business to find a solution to enable the transfer to occur.
  3. Overdue debt – The incoming lender may not be able to fund overdue debt and therefore during the time it takes for the transfer to complete some debt may become overdue. The incoming lender will work with both the business and All Star Funding to find a solution to overcome this issue.

Will a lender want to purchase our entire debtor book or can we pick and choose?

Every lender is different and will review the business on a case by case basis. Traditionally Invoice Factoring / Invoice Discounting lenders required a business to submit every debtor and every invoice. Over the years this trend has changed and with the uprising of FinTechs there is the ability to pick and choose what is required to be funded.

How to switch Invoice Finance providers

The key principle to be aware of is that the more invoices which are being funded the cheaper the cost will be. A selective facility can work out quite expensive as this present a higher risk to a lender.

Are we able to transfer from an Invoice Factoring to an Invoice Discounting facility?

Every business has the right to choose which type of facility they utilise. We often see businesses that are using Factoring but have never heard of Invoice Discounting although this would be a better solution. In essence the difference between the two types of facility is who completes the credit control function. With Factoring the lender completes the credit control function whereas with Invoice Discounting the business retains responsibility for the credit control.

There can also be cost saving advantages to a business in switching facility types. As Factoring includes an added service of credit control this is usually more expensive for the business.

How long does it take to switch an Invoice Factoring or Invoice Discounting facility?

This is often dictated by the business, the lender and complexity of the situation. In most instances an existing user will be tied into a contract and have some notice period to be served. If the notice period has expired or the outgoing lender is happy to release the business from the contract then a transfer can be completed usually within 1- 3 weeks. It can be quicker but there are a number of stages to be completed during this time period.

Why use an Invoice Finance broker?

All Star Funding Solutions have over 17 years’ experience in the Invoice Factoring / Invoice Discounting sector and we work with all the key lenders in the UK. We use our experience to not only identify the perfect solution but to help bridge the gap between the lender and business. All Star Funding Solutions is also able to negotiate better rates on behalf of the business and we are confident of reducing the fees on every business we work with. In fact we have a 100% record in 2017, 2018 and so far in 2019 of reducing the costs on every business we have worked with.

We have helped switch a large number of facilities in our time and our lenders follow the ABFA code of conduct for switching facilities.  

Our personal approach means that we are available as and when required to help minimise the impact of the transfer process.

If you are interested in finding out more about how to transfer your existing Invoice Factoring / Invoice Discounting facility please give us a call on 0161 8211478 for a confidential discussion.

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