- 01 Sep
Solving A Pay When Paid Concentration Limit Problem On Hays Recruitment
Another success story regarding a client that we were able to help overcome an invoice finance funding restriction.
We have seen many issues with debtor concentrations, within the recruitment sector, that can be relaxed by comparing the funding levels between different providers. We had a case where a client needed help with the concentration limit on Hays Recruitment, with whom they wanted to increase their trading levels. However, they were being held back by their existing invoice finance company, who were not prepared to offer a sufficiently relaxed concentration limit, due to the presence of a "pay when paid" clause within the terms of the arrangement with Hays. There was no problem with the credit standing of Hays Recruitment, it was only the presence of this clause that was causing the financier to take a cautious approach to setting the debtor concentration limit.
Pay When Paid Clauses
A "pay when paid" clause means that the debtor (in this case Hays) is only obliged to pay their supplier, after they have been paid by their own end customer who sits up the supply chain. The problem with these clauses for invoice financiers, is that they complicate the simplistic nature of the invoice by introducing an additional requirement, that must be satisfied, prior to getting paid.
Debtor Concentration Limits
The effect of a debtor concentration limit is to restrict the level of funding against a specific debtor, or the largest debtor (or debtors) on the sales ledger. The approach differs between invoice finance companies. For example, if you are receiving say a 90% prepayment against your invoices, you might expect to received £90 when you raise an invoice for £100. This is not the case if the invoice is to a customer that is subject to a debtor concentration limit. If you had a limit of say 40%, the invoices that attract funding in respect of that customer are limited to 40% of the total value of sales invoices outstanding (on a sales ledger of £180, this would be £72). Therefore, if the balance on that customer amounted to say 50% of your sales ledger, the remaining 10% of invoicing (the portion above the concentration limit - £18 in our example - the difference between £90 and £72) would not attract any funding. In this way, funders can limit their exposure to funding prime debtor situations.
More Flexible Funding
In the case of our client, we were able to find them an alternative invoice finance company that were able to relax the debtor concentration limit, and release c. 35% more flexible funding than their existing provider.
If you are having a problem with a debtor concentration limit, please call Sean on 03330 113622, and let us see what we can do to help you find a more flexible alternative.