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What can you do if your invoice finance facility is restricted?

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What can you do if your invoice finance facility is restricted?

If your invoice finance facility is limited, it can have a severely detrimental effect on your cash flow, and over the longer-term curb your company’s growth. As businesses evolve naturally over time, it may be the case that the invoice finance terms you originally signed up for are no longer appropriate.

In fact, if the facility isn’t regularly reviewed by your lender, it’s likely to be outdated and probably costing you more than it should. So what do you need to look out for in your invoice finance agreement, and how do you identify the ways in which your lender is restricting access to vital funding?

Overall facility limit

The overall level of your finance facility may be limited due to a lender’s own policy.  They may have their own limits on how much they can lend, but this is very restricting for you if you believe you should be able to access more working capital given your turnover, business history, and projections for the future.

Individual debtor or concentration limits

Sometimes limits are set against specific customers, or when one or two customers represent a large proportion of your overall turnover. Again, this could be due to the funder’s own internal lending policies.

Low prepayment limit

If your invoice financier is limiting the prepayment percentage for ‘eligible’ invoices, you should initially look at their definition of ‘eligible’ – are certain types of work being excluded, for example? Restricted prepayment limits can also result if you’ve issued a large number of credit notes in the past.

Export caps

Some lenders set a limit on the cash they will release against export sales, and others may have a policy of not funding export sales at all.

So what can you do about a restricted invoice finance facility?

Request a review

Approach your lender for a review of your facility, taking into account any changes in business performance, operational structure, or customer base. They may be willing to be more flexible in their approach to certain types of work, for example, or approve a higher prepayment amount.

Negotiate with your lender

You may be able to negotiate a new arrangement with your financier to resolve the situation. This would be the ideal solution but if the restrictions have been set as part of their company policy, they may be unable to help in the long-term.

But finding a new lender may be your only option in some circumstances.

How might you benefit from moving to a new lender?

Increased cash flow

A facility with few or no restrictions optimises your cash flow so you can operate on a higher level day-to-day, but it also lets you make longer-term strategic decisions with more confidence. Focusing on the overall structure of an invoice finance deal, alongside the reduction or removal of restrictions, is important, and factors in your potential future needs.

Reduced costs

As well as the benefits of using an invoice finance facility that’s flexible and tailored closely to your business, changing lenders can also reduce your costs. Again, ensuring a new facility is regularly reviewed will ensure it meets your ever-changing business and cash flow needs, but it’s not just about the ‘headline’ prepayment rate – you also need to consider the additional costs and disbursements that a lender might apply.

Improved levels of service

You may have been unhappy with your previous invoice financier, not only because of the restrictions they imposed, but perhaps for poor levels of service and the fact that they weren’t proactive in reviewing your old facility. When approaching a new lender, you’ll be more aware of their level of involvement, and whether they’re interested in ensuring their client’s ongoing needs are fully met.

All factors and invoice discounters essentially offer the same basic facility – the use of your sales ledger to borrow money. How they apply their own in-house policies, how flexible they are, and whether they continue to deliver on the agreement, is what needs to be considered.

For more information on invoice finance and the potential restrictions that could be imposed by a lender, call one of our experts at Real Business Rescue. We have contacts with alternative lenders around the UK, and can assist in identifying and negotiating the best deal. With over 50 offices nationwide, we also offer free same-day consultations.


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