- 26 Feb
100% Confidential Invoice Finance?
This post seeks to explore the case for confidential invoice finance facilities, and the degree to which you can expect your facility to be, and to remain, 100% confidential from your customers.
100% Confidential Invoice Finance?
This post was sparked by an online conversation that I saw regarding a claim to offer "100% confidential" invoice financing. The claim was questioned by an experienced individual within the sector, as there are a number of limitations associated with confidentiality, that were not accounted for in that statement.
Is Confidentiality Important?
Many of our customers are not concerned with their facility being confidential from their customers (debtors). In many cases, they want a full factoring facility, whereby the funder is also chasing their sales ledger, in order to save them time and cost, avoiding the need to employ their own credit controllers. In these cases, it is overtly known that there is an invoice finance company involved, and this disclosure is not normally seen as a problem.
Invoices will bear an assignment clause, stating that the customer must pay the factor, debtors will have been sent a letter (GNA - General Notice of Assignment) advising them of the factor's involvement and the factor will call identifying themselves when chasing outstanding invoices.
There are confidential factoring options, whereby all the credit control servicing is provided under the branding of the client, GNA letters are not sent and invoices do not bear assignment clauses. However these account for the minority of the facilities that we are asked to find for our clients.
How Disclosure Occurs
Disclosure is the antithesis to confidentiality. When operating invoice finance facilities, there are a number of ways that facilities can disclose the involvement of a funder, to the debtors.
Assignment Clauses & Notifications
Invoices can be required to show an assignment clause. This is a clause saying that the invoice has been assigned to the funder, requiring the debtor to pay the funder direct.
It is also common practice to send out a "general notice of assignment", GNA letter at the beginning of an invoice discounting or factoring arrangement. This explains that the debts are being assigned to an invoice finance company (assignment is a transfer of title from the supplier to another party), and requires that the customer makes payment to the financier. This discloses the involvement of the invoice financier.
Registered Charges Over Book Debts
The other aspect to consider, is that in the majority of cases, an invoice finance, invoice discounting or factoring company will seek to take a charge over the book dates of their client company. A charge over an asset (also sometimes called a debenture - which is a charge over all the assets of an entity) gives one party title to an asset under prescribed circumstances. Whilst their facility is typically predicated upon an assignment of the book debts, the presence of a registered charge gives the funder greater security should the validity of their assignment be challenged.
The issue with granting such a charge, is that it has to be registered at Companies House (CH), and it bears the name of the invoice finance company. CH is a central registry of information regarding companies and similar entities. Anyone can conduct a search at CH and can therefore identify the presence of such a charge or debenture.
Therefore, by undertaking a search at companies house, you can identify if a charge has been registered to an invoice financing company. There is a full list of invoice finance companies on our website, so you can see if a company has a charge registered to any one of them. You should note that in some cases, the name in which the charges registered, may differ from the name of the factoring, or discounting, company. However, for those of us that work within the industry, we are very much aware of the names of the entities that are used.
Disclosure Post Commencement
The last issue is that of disclosure, post commencement, by the funder in given circumstances. If the funder believes that you have breached the terms of the facility, they will have retained the right to disclose their position to your debtors (refer to your facility agreement) - in order to help them collect in your outstanding receivables. This could involve sending out GNA letters which may be held on file by the funder, until called for.
Can Invoice Finance Be 100% Confidential?
You can have a facility whereby there are no assignment clauses on the invoices, and there are no GNA letters sent to your debtors. These are termed "confidential" invoice finance facilities. #
As described above, you can also receive the credit control service, should you wish to have one, in the name of your business, such that it is not straightforward for customers to identify that you are using an invoice finance company.
However, to answer the question about 100% confidentiality, it is unlikely to be the case that there is no possibility of anyone finding out that you are using invoice finance, due to the presence of a registered charge over your book debts that will appear on your CH records.
In the majority of cases, the registration of a charge over your book debts will still be an identifying feature that, to some extent, compromises the confidentiality of your facility. In all cases the funder will retain the right to disclose their position, should you breach the terms of the facility.
Does this make any difference to the majority of customers we speak to? The answer is "No". In most cases client's are unconcerned with confidentiality, and those that are tend to be satisfied with a confidential facility that is subject to the limitations explained above.