Factoring and invoice discounting group, Ultimate Finance, has agreed to buy Ashley Commercial Finance for an initial £4.75m in cash and shares with a bonus payment of up to £2.7m if the business meets certain targets.
Ashley Commercial Finance imposed a policy of capping the amount it would lend to individual clients at £50,000 in June last year. This prompted rumours about its financial position.
Ashley Commercial Finance, based near Manchester, provided invoice finance to small and medium-sized businesses. At March 31, it had a loan book of just over £4.4m and net assets of £0.94m, and generated an operating profit in the year of £0.69m. However its net asset position had deteriorated from the position as at March 31 2009 when it had net assets of £1.6m.
This recent acquisition is further evidence of consolidation in the business services sector.
What is invoice factoring or discounting?
You sell the debtor book to a factoring company who then provide the company with working capital advances against that asset. They will provide from 50-95% advance against the debtor book and charge around 0.5% to 3% depending on the number of invoices, the quality of the book and how much work is required. All your future invoices pass through the system and this sharply improves cashflow. Not any more seen as "lending of last resort".
If you debtor control is poor this can help. It is extremely flexible form of finance - the facility can rise and fall as your needs dictate. If the company is under pressure and your sales are growing it is a vital tool. Finding the right factor can lead to much more efficient use of your assets and the ability to plan production or activity - thereby creating improved efficiency.
Concentration in one or two customers can cause difficulties. It is perceived as expensive - but it is providing the commodity you need - money. Most banks have a factoring division - they may not be suitable for your business - shop around. Any bank overdraft is normally repaid from the advance from the factor (the bank’s main security is sold to the factor). If you have very low margins or your debtors pay very slowly (more than 80 days) it is not suitable.
For more information on refinancing options please refer to our website.