What are Revolving Credit Facilities?

A Revolving credit facility is a dynamic financial tool designed to provide businesses with flexibility in accessing funds. These facilities offer a predetermined credit limit that companies can tap into as needed. 

This is a popular option for businesses that have been using Invoice Factoring or Invoice Discounting, but who are now looking to reduce the amount of administration required. As there is no requirement to upload invoices or send a monthly reconciliation of accounts, it can free up your admin or finance team to concentrate on other tasks. 

The facility size will be based on your sales ledger over the previous twelve months and will consider your expected turnover in the upcoming year. This will allow you and the funder to ensure the facility size will cover your cash need. 

The funding line will be typically set at between 50% – 80% of your expected sales ledger. This is often more than enough for established businesses and as the annual service fee is based on a lower funding amount, there can be considerable savings compared to a factoring or discounting service fee, which is based on a percentage of your total annual turnover.

Unlike traditional loans, businesses can borrow, repay, and borrow again up to the credit limit without needing to reapply each time. The funding limit can also be increased in line with your revenue. You only pay interest on the funds in use, If you don’t draw down any funds on a particular month, you only pay the minimum service fee. 

When compared with a traditional bank overdraft, a big advantage is that there is usually no personal guarantee required. The application process is typically a lot quicker and your funding line can be increased easily without having to reapply. Also, overdrafts can be withdrawn at any time and the high street banks appear keen to move their clients towards other financial products.

Summary of Benefits

For UK Businesses, a revolving credit facility offers several advantages.

It provides a flexible source of funding that can be accessed as needed. Businesses can borrow and repay within a predetermined credit limit without reapplying for a new loan each time.

Companies retain control over how and when they use the funds. They can draw down funds as required, managing cash flow or seizing opportunities without restrictions.

The funds obtained through a revolving credit facility can be used for various purposes, such as managing working capital, covering operational expenses, investing in growth initiatives, or addressing short-term financial needs.

With a reduced funding line, associated annual fees are vastly reduced. This differs to an invoice factoring or discounting facility that base their service fee on your entire annual turnover.

As businesses grow, the available credit limit can also increase, providing a scalable financing option that aligns with the company’s expansion.

Once established, a revolving credit facility provides immediate access to funds, allowing businesses to respond swiftly to financial needs or market opportunities.

It aids in financial planning by offering a safety net for unexpected expenses or seasonal fluctuations, ensuring stability and predictability in cash flow management.

Responsible use of a revolving credit facility can positively impact a business’s credit rating, potentially leading to improved terms for future borrowing.

Overall, a revolving credit facility in the UK offers adaptability, convenience, and financial stability, serving as a versatile tool to support various business needs and objectives.

If you would like to explore the different revolving credit facilities that are available, please get in touch. Your business will ideally have three years of audited accounts available and a turnover above £1,000,000. 

For further insight into Revolving Credit Facilities, please see our video.

Our Other Invoice Finance Services

Invoice Factoring

Invoice Factoring is a popular choice for newly established or growing businesses. The funder will advance between 85%-90% of the invoice value and manages the credit control on your behalf, confidentially if required.

Invoice Discounting

Invoice discounting is a valuable financial tool for businesses seeking enhanced cash flow management. With invoice discounting, businesses maintain control over their sales ledger while unlocking the cash tied up in outstanding invoices.

Single Invoice Financing

Single invoice finance, also known as Spot Factoring, allows you to receive an advance against single or selected invoices. This can be used as and when required, without the need for any long-term commitment.

Construction Finance

In the construction industry, Construction Finance is used to release cash against your applications for payment or payment certificates. It can also be used in other industries that receive staged or milestone payments throughout the term of a contract.

Switching Funder

If your Invoice Finance facility is due for renewal, it’s worth reviewing your fees, service levels, funding amount and concentration limits to see if there is a better deal, or a more suited facility on offer in the market.