How can I keep an overdraft when my bank wants to switch to its invoice finance product?
My bank wants to reduce my overdraft facility and is pushing its invoice finance service. If I don’t go along with this it is clear I may lose my overdraft altogether. Why are they doing this and can I shop around?
A. David Richards of IGF writes:
There are a number of reasons why your bank is pushing invoice finance. Banks today tend to prefer invoice finance, along with term loans, as this avoids ‘hard core’ borrowing being established on ‘repayable on demand’ facilities such as overdrafts.
Banks now have to consider a legal case called Brumark, which challenges their ability to consider debtors of the business as security for borrowing. Invoice finance circumvents this issue and usually provides a more flexible solution for expanding companies as the facility grows with you.
The products can lead to a greater availability of cash with funding of up to 90% of unpaid invoices, allowing for overdraft repayment and extra working capital going forward. The bank will work hard to retain the finance of all your assets as this gives them greater control over your business. They regularly insist you use their invoice finance provider or lose other facilities. They have no right to do this but if you have several facilities with them they hold the cards.
This product will not suit all companies and you should certainly look at alternative providers. Make sure anyone you consider is a member of the Factors and Discounters Association (FDA).