Hi All,
Since becoming Limited in August, had to go over to business banking. The problem I'm finding at the moment is whether to have a business overdraft. The reason being is most people i work for are on a pay roll of 30 days from them receiving the invoice. I don't have a problem with this as its always been the case, however constanting being owed ££££ all the time and having to buy more stock and other costs for new jobs coming in, i was thinking about adding an overdraft. My bank charged £25.00 per transaction if an overdraft is not in place!
However, upon speaking to the bank, they want £120 fee for opening the overdraft. (starting to learn how banks bank there money!)
Also, they want me to act as a guarantor. One of the reasons i went Limited was for protection incase anything went wrong, now they are insisting on me being a guarantor which i do not want to do particularly. anyone else had this?
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Quite normal for the Bank to ask for a Director's guarantee. To the bank, you have no history yet and they are cautious that you do not go 'Ltd' to run up debts and then do a runner. Once you have a few years under your belt with good trading history the Banks will look at you differently and may offer 'credit' to the company without a Director's guarantee. Costs seem about normal.
Using an overdraft to deal with minor cashflow ups & down is quite normal, but it should never be used speculatively and repaid asap due to charges.
Ideally, you need to build up a % of working capital to allow you to buffer such situations out of your money.
Make sure your Terms are clear on the Invoice, get your invoices out ASAP, then after the Term period + a couple of days grace, do some 'credit control' or least send a Statement of Account.
Only other option is Invoice Factoring, where you, in effect, sell your invoices to a 3rd party for an instant payment of ~80-90% of face value - not something I'd consider tho....
Thanks for the quick response Gary,
Being my first business bank account, i now understand what they mean.
I always have a buffer as you mentioned, I've had a couple of cases this year where companies have missed my invoices on contracts, which then take an extra 2 weeks to arrive. couldn't survive without the buffer!
my idea of the overdraft is for instances I've just mentioned. always having the buffer allows us to undertake work for larger companies with 30 day payroll.
Make sure you know who your key contacts are in clients business (ie the accounts person) - deal with them 'easy', do a bit of sweet talking and the odd big tin of biscuits or bottle can go a long way.
Also, have them tell you how to address your invoices - otherwise they can sit on a desk while the Receptionists figures out who they go to - that can waste a day or two in some instances.
Only small things, but they all help :)
Cheers Gary!
One way I dealt with this was to switch to emailed invoices. That instantly cut out all of the wait time from the Royal Mail, receptionists, In trays etc. Much quicker now and has probably reduced the wait time by 50%.
I went to see my Bank Relationship Manager this morning - a new one apparently. Turned up and its a regular customer! Which was nice.......:-)
For a new LTD company this seems fairly common amongst people I know. It is a handy function that has allowed me to keep going when my man maths has gone horribly wrong!
I have to say emailed invoices makes things so much easier now!! Natwest from memory want £50 to do an overdraft I believe?
The buffer is important but sometimes things happen that you won't have allowed for and thats when that extra borrowing can come in useful. I try to avoid my one by mixing some small quick jobs with the larger slow paying ones.
Never took the overdraft, would always use it, so can't help with that
I'd go the other way and either get accounts from suppliers, things like a fuel card if a deal's available, or use a personal credit card if you need to.
The stupid thing is that we all expect free personal banking, but as businesses we pay over the top.
If they want you as a gaurantor on an expensive overdraft then a personal credit card is no worse a risk.
With the overdraft you'd pay ( I think) a monthly fee every month you use it, and interest every day. A credit card or accounts should keep your costs free for 30 days until the job is paid for.
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