Keeping you up to date on the world of Marketplace Lending
By Craig Brown, General Manager Lending, Lock Finance.
How Invoice Finance Works
Businesses sell goods and services on standard payment terms such as 20th of the following month or 60-day terms. They invoice once the goods or services have been provided to the client or completed. By nature, their client base is spread so they don’t have all their eggs in one basket.
The risk to the business is that their debtors may defer paying invoices while waiting on revenue, or the debtors’ payment terms may be longer than usual. In the meantime the business still has their own bills to pay and therefore could fall short on cashflow.
In the case of invoice finance, the business may look to borrow up to 80% of the value of their spread debtor’s ledger where all goods or services have been delivered. This is in order to help mitigate their shortfall between their debtors and creditors.
Debtors’ payments are paid directly to Lock Finance as the means of repaying the facility and then new funds are re-drawn against new invoices as they come in.
On behalf of Zagga investors, Lock Finance manages the lending and completes all due diligence on every loan, utilising over one hundred years of experience. Funding for these loans comes from Zagga investors, through the ‘Peer to Peer Factoring Fund’.
The risk to Zagga investors is mitigated in a number of ways:
A bonus aspect of invoices as security, is that it includes a specific charge and ranks the investors ahead of preferential creditors or General Securities. Therefore, the investors get paid first ahead of anyone else.
The investors also take a General Security so that, if required, other assets can be liquidated and a personal guarantee further helps to cover any potential shortfall.
Lock Finance completes a thorough risk assessment on every borrower and their situation to ensure they’re eligible for borrowing. This process includes: