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• 10 Aug

  Invoice Finance Helps Scottish HVAC Company Fund New Projects

  A long-established Scottish HVAC supplier and installer with an annual turnover of approximately £1.5 million needed additional working capital to take on upcoming projects with a major customer. FundInvoice helped the company find a suitable invoice finance facility in Scotland, ultimately arranging confidential funding across its wider sales ledger while allowing the business to continue handling its own credit control.

  Case Study At A Glance

  Business: Long-established HVAC supplier and installer
  Location: Scotland
  Annual turnover: Approximately £1.5 million
  Funding requirement: Additional working capital to support new projects
  Solution: Confidential CHOCCS invoice finance
  Key issue: Obtaining a sufficient credit limit on the company's main debtor
  Resolution: The company obtained the required debtor cover through its own credit insurance arrangements, which could be used alongside the invoice finance facility.

  The Challenge: Funding New HVAC Projects

  The Scottish company operates in the HVAC sector, supplying and installing heating, ventilation and air conditioning systems.

  HVAC stands for Heating, Ventilation and Air Conditioning. Businesses in the sector can face significant working capital requirements because labour, equipment, materials and other project costs may need to be paid well before customers settle their invoices.

  In this case, the company had an opportunity to undertake additional projects for its main customer. The work was available, but funding the projects entirely from its existing cash resources would have been difficult.

  This is a useful example of how cash flow pressure does not necessarily mean that a business is performing badly. Growth itself can create a working capital requirement. A company may win profitable new business but still need to finance the gap between paying the costs of delivering that work and receiving payment from its customer.

  Businesses that want to understand the source of their own cash flow pressure can also use our free Cash Flow Improvement System.

  Could Invoice Finance Fund The Additional Work?

  Invoice finance was considered because the company already had money tied up in its outstanding customer invoices.

  Rather than waiting for customers to pay in the normal course of business, an invoice finance facility can release a proportion of the value of eligible invoices earlier. This can provide additional working capital to help cover the costs of taking on further projects.

  The original requirement focused primarily on the company's main debtor, as this customer was responsible for the upcoming work.

  However, focusing solely on that debtor was ultimately not the best solution.

  Why Fund More Than One Customer?

  After reviewing the company's circumstances, it made better commercial sense to include the wider sales ledger within the invoice finance facility.

  This increased the pool of invoices against which funding could be made available, thereby helping to maximise the working capital available to the business.

  It illustrates an important point when considering invoice finance. The immediate cash requirement may arise from a single large customer or contract, but that does not necessarily mean that funding only those invoices will provide the best overall solution.

  Where appropriate, including other eligible customers can increase funding availability and give the business greater flexibility.

  The Importance Of The Main Debtor Credit Limit

  One of the issues that had to be resolved was obtaining a suitable credit limit for the company's main debtor.

  Credit limits can be particularly important where a significant proportion of a company's sales are concentrated with one customer. The amount of funding available against that debtor may depend on the finance provider's comfort with the level of exposure.

  In this case, obtaining the required limit caused some delay.

  The company was eventually able to obtain a suitable limit through its own existing credit insurance policy. That cover could then be used alongside the invoice finance arrangement.

  Can Existing Credit Insurance Work Alongside Invoice Finance?

  In some circumstances, a business may already have its own credit insurance arrangements, which may be used alongside an invoice finance facility.

  In this particular case, the company's own credit insurance arrangements helped support the required limit on its key debtor, enabling the invoice finance facility to proceed.

  Whether an existing policy can be used will depend on the insurer, finance provider, policy terms, and the structure of the proposed facility.

  FundInvoice does not arrange credit insurance products, but businesses looking for protection against customer non-payment may also wish to read about bad debt protection and non-recourse invoice finance, which can be structured differently from standalone credit insurance.

  Why Was A Confidential CHOCCS Facility Used?

  The solution arranged was a confidential invoice finance facility operating on a CHOCCS basis.

  CHOCCS stands for Customer Handles Own Credit Control. It describes an invoice finance arrangement in which the business continues to carry out its own credit control and collect customer payments, rather than handing routine collections over to the finance provider.

  You can read more about CHOCCS invoice finance and Customer Handles Own Credit Control.

  This type of arrangement can suit an established business that already has effective credit control procedures and wants to maintain direct control over its customer relationships.

  The confidential nature of the arrangement also meant that the funding facility did not need to be disclosed to customers in the same way as a traditional disclosed factoring facility.

  The Invoice Finance Solution

  The final arrangement brought several elements together:

  • a confidential invoice finance facility;
  • CHOCCS, allowing the company to retain responsibility for its own credit control;
  • funding across the wider eligible debtor book rather than restricting the facility to the main customer; and
  • use of the company's existing credit insurance arrangements to support the required limit on its key debtor.

  The result was a facility designed to maximise the working capital available from the company's outstanding invoices and help it take advantage of additional projects.

  What Can Other Businesses Learn From This Case?

  This case demonstrates why invoice finance is not simply a solution for businesses experiencing financial difficulties.

  It can also be used to fund growth.

  Winning a large new customer contract or project can create a short-term funding requirement because the business must cover the costs of performing the work before receiving payment.

  It also demonstrates why the structure of an invoice finance facility matters. A request that initially appears to be about funding invoices to one customer may ultimately be better served by releasing funding across a larger proportion of the sales ledger.

  Finally, businesses that already have their own credit insurance arrangements should not assume that these prevent them from using invoice finance. Depending on the lender, insurer, and facility structure, the two may be able to work alongside one another.

  Invoice Finance For Businesses In Scotland

  This case is one example of how invoice finance in Scotland can be used by established businesses to support growth and address cash flow requirements. Please note that not all providers are able to provide facilities in Scotland, as there are legal differences requiring specialist agreements.

  FundInvoice helps Scottish businesses compare invoice finance options from finance providers that can offer invoice finance to Scottish companies. Facilities can include factoring, invoice discounting, confidential invoice finance and CHOCCS arrangements, depending on the circumstances and requirements of the business.

  Businesses do not necessarily need to use a locally based finance provider. The important factors are finding a facility that suits the company's sales ledger, customers, funding requirement and preferred way of managing credit control.

  If you are a business in Scotland looking for invoice finance, FundInvoice can compare available options and help identify providers suited to your particular requirements.

  Need Working Capital To Take On More Business?

  If your company has opportunities to grow but customer payment terms are limiting the amount of new work you can comfortably take on, invoice finance may release additional working capital from your outstanding invoices.

  Find out more about invoice finance or contact FundInvoice on 03330 113622 to discuss the options available.

  Frequently Asked Questions

  Can Invoice Finance Be Used To Fund Business Growth?

  Yes. Invoice finance can release working capital tied up in unpaid customer invoices. Businesses may use the additional cash to help fund new contracts, projects, materials, wages and other costs associated with growth.

  What Does HVAC Mean?

  HVAC stands for Heating, Ventilation and Air Conditioning. HVAC companies may supply, install, maintain or repair heating, cooling and ventilation systems for commercial or domestic customers.

  What Does CHOCCS Mean In Invoice Finance?

  CHOCCS stands for Customer Handles Own Credit Control. The business continues to carry out its own credit control and collect customer payments while using an invoice finance facility to release working capital against eligible invoices.

  Can Invoice Finance Be Confidential?

  Yes. Confidential invoice finance facilities are available, in which customers are not routinely made aware that the business is using invoice finance. Availability depends upon the business and the finance provider's criteria.

  Can Existing Credit Insurance Be Used With Invoice Finance?

  In some cases, yes. A business's existing credit insurance arrangements may be used alongside an invoice finance facility. This depends on the insurer, finance provider, policy wording, and the structure of the facility.

  Can Invoice Finance Help If One Customer Accounts For A Large Proportion Of Sales?

  Potentially. This is often referred to as a customer or debtor concentration. The finance provider will normally consider the amount owed by the major customer, its creditworthiness and the overall sales ledger when deciding how much funding may be made available. Having a debtor credit limit that covers the invoicing value can provide the funder with comfort to finance against their invoices.

  Is Invoice Finance Only For Businesses With Cash Flow Problems?

  No. Businesses can use invoice finance to support growth and address cash flow pressures. It can be particularly useful where a company has profitable work available but needs to pay wages, suppliers or other costs before its customers pay.

  Can FundInvoice Arrange Invoice Finance For Scottish Businesses?

  Yes. FundInvoice helps businesses throughout Scotland find and compare invoice finance Scotland facilities from providers that can accept Scottish-registered companies. Options can include factoring, invoice discounting, confidential invoice finance and CHOCCS, depending on the business and its requirements.

  By Glenn Blackman