Companies which have been missing out of business deals due to lack of working capital were this week rubbing their hands gleefully in anticipation of flexible, easy to access funding, following the launch of the Botswana Development Corporation (BDC) Invoice Discounting Division.
Launching the Invoice Discounting Division on Thursday, at a Botswana International Conference Centre cocktail party, the division?s manager, Rob Boyd, explained that invoice discounting is ? a financial product that provides ongoing working capital to businesses by advancing funds against purchased business to business (not consumer) debt.?
Under this facility, businesses? access to funding is not limited by the amount of security the business can offer, but by the business turnover. This means access to funding increases as the business grows. This is an ongoing facility, with no annual reviews, renegotiation or charges.
Boyd told the crowd that attended the launch that invoice discounting can be on a confidential basis – where the debtor is not aware of Invoice Discounting Division?s involvement or on a disclosed basis where the debtor is aware of the involvement.
?Exceptionally, we will purchase individual (large) invoices when there is no ongoing working capital requirement
?In the UK, is undoubtedly the best developed invoice finance market in the world, with invoice finance advances in 2006 amounting to GBP 173 billion.?
Explaining how the facility works, Boyd said, ?We put a facility with a hard limit in place then we provide a percentage of between 60 and 85 of the invoice value when it is raised and sold to us.
Invoices can be sold to us as often as needed ?even daily. Payments are made daily at around 12.30 pm (electronically preferable but will obviously issue cheques when necessary) so we will pay out against any invoice offered to us before noon. If received during the afternoon, the payment will only go out the next day. We do not collect debts and will not, in the ordinary course of business, come between you and your customer. The balance of the invoice value (15 to 40 percent) is paid when we get cleared funds in our account. All payments from debtors come to us whether a confidential or disclosed facility.?
The funding pricing structure has three components:
* Administration fee ? an ongoing charge applied to each invoice purchased ?
usually around 1 percent
* Discount fee, which is the interest charged for the money advances ?
usually around prime rate.
* Arrangement fee, which is a one of charge for setting up the facility ?
usually 0.25 of the facility limit.
The division?s minimum funding limit is P100, 000 which generally means an annual turnover of P1 million, although each case is assessed on its merits.