My Invoice Finance provider is restricting my funding because of “Concentration”.
What does this mean, and is there anything I can do?
Well, here’s the rub. Your Invoice Finance provider’s pulling a right fast one with your funding because of this “Concentration” malarkey. What’s all that about, then?
Let me explain.
The sales fella promises you 85% pre-payment against approved debtors but forgets to mention they might set a concentration percentage or disapprove some debtors. It’s not their problem because by then, they have you signed up.
Naughty
When they bang on about concentration, it means no one debtor can be more than a certain percentage of your debtor ledger. If they are, any value over that won’t be funded. Bit of a faff, right?
From their side, they want to reduce exposure to one debtor and spread the risk, which makes sense.
They’d love to see a nice spread, so if one debtor goes belly up, they still get full repayment from the rest of the bunch.
Ideally, they’d want 85% pre-payment with a 15% concentration limit, but in reality, they’re usually a bit more lenient, maybe 25% to 40%.
So, if you’ve got one big debtor, it can be a right pain.
What can you do?
Well, first off, shop around – different funders have different risk appetites.
Some might take a higher concentration if the debtor’s sound. You could also get credit insurance against the big debtor and ask your funder to reconsider. This will reduce their risk.
Finally, think about Single Debtor Invoice Finance. Some providers fund against single debtors or even single invoices. If that works for you, it could solve your problem and save you a few bob.
Remember, finance ain’t a one-size-fits-all game. Do your homework or better yet, get someone like me, Honest John, to do it for you.
If you Need more detail, call or drop me a line, always happy to help.
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