Commercial finance glossary
Debtor Protection
The facility offers balance sheet protection, effectively protecting your largest asset (The accounts receivable). The facility assists enhancement of business controls and helps spot potential credit risk problems before it leads to a bad debt. In this way, the service allows for bad debt provisions to be reduced, which in turn can release capital for business expansion.
Businesses effectively lend their customers money - unsecured, exposing themselves to risk.
Dealing with blue chip companies does not secure any business against bad debts. A single bad debt could effectively wipe out years of work. For example with a 10% margin, a £5K bad debt, results in a loss that requires £50K of turnover to offset that loss.
In partnership with AIG, LTSBCF provide 90% cover on debtors, to include exports (Facility covers UK, Western Europe, USA, Canada and many more.). The facility operates on a whole turnover basis and allows you to choose the right level of excess for your business (The minimum being £500 on factoring facilities & £1K on Invoice Discounting Facilities). In order to assess if this add-on service would be of benefit to you, we simply ask you to provide basic information, to include your customers' names, registration numbers, the limits you require and your bad debt history. This information will enable us to provide you with a quote for debtor protection along with indicative limits to allow you to make an informed decision on the facility. Once you agree to proceed, you will be provided with a free of charge link to our on-line systems, where you can request your limits and manage the facility. You will have almost instant access to limits and can decide whether you wish to trade with a customer without delay. On occasion a decision may have to be referred to an underwriter for further analysis. This link also provides access to underwriters.
The policy covers insolvency, where a company goes out of business. Payouts relating to insolvency will usually be made within 30 days. The facility also had a protracted default feature, where a company fails to pay invoices; a claim can be made once an invoice is over 180 days old. The facility does not operate any first loss and as such has 100% pay out rate.
Take-on debts can be covered and fees are extremely competitive and vary according to the size of the business and the risk profile of the debtors. The typical range tends to be from 0.25% - 0.75% of the annual notifiable turnover and there are no minimum annual rates! Administration is minimal (should take no more than 15 minutes per month) - we simply ask you to feed back any balances over 60 days old (via the online system) on a monthly basis.
