Invoice Discounting

In the past Asset Based lending (ABL), was in the form of invoice discounting and generally viewed as a temporary funding product similar to a standard bank overdraft. However, this model has been replaced as the market began to accept invoice discounting as a funding tool, and the asset-based lenders (ABLs) themselves refined the product and services and use the other assets on the balance sheet and their value as security on loans provided.

Depreciating assets, such as plant and equipment, provide good security, with the ABLs providing finance based on the eventual realisation value of the asset, rather than the book value, so that there is enough residual left to pay for the servicing of the loan facility.

The strongest asset of all, from a security perspective, is often property, but long term mortgage-style lending did not sit well with the shorter timescales of the ABL's other products. With their invoice discounting background, the ABLs were typically offering lower loan-to-value ratios over shorter timescales than was being offered by traditional bank mortgages. With the high street banks increasingly moving into the ABL market themselves, far greater flexibility over property lending is now being achieved.

Traditionally, invoice discounting has supported situations in which it is easy to prove the delivery of goods or services to the customer and hence that an obligation exists for the customer to pay for those goods or services. One area that in the past been difficult to finance is contractual type arrangements, where failure to comply with all the terms of a contract may render a debt difficult to collect due to liquidated damages claims from the customer for non-performance. This situation is changing as lenders are taking advice from specialist and therefore are able to discuss in detail a range of scenarios that may result if company or business gets in to repayment difficulties.

To answer any questions you may have of Invoice finance or Invoice discounting please click here to contact a member of the Capex finance team.