Some SMEs have difficulties in obtaining financing in the form of a credit policy, factoring or commercial discount. In these cases, they can go to a credit policy for the advance of invoices.
Many companies charge for transfer to 30 or 60 days (or even more, although the law limits the payment term to 60 days), and they do not have any document to negotiate advances with the bank (such as promissory notes or direct debits). This hinders their access to financing since they cannot use the discount because they do not have the indicated documents.
A credit policy to anticipate bill collection
It is also difficult for them to access the advance of invoices. The banks are reluctant to this product, due to its risk (they cannot claim against the debtor in an executive manner) and due to the difficulty of control (once the expiration date is not easy to verify the income made by the payer).
On the other hand, it may be the case that these same companies cannot access a current account credit policy. Banks are also restrictive with this financing instrument, since, since the current account linked to the policy admits any type of charge, there may be an “inappropriate” use.
Well, a financing alternative that is more pleasing to financial institutions is the “credit policy for the advance payment of invoices”. Its operation is like that of a credit policy, but the charges in the policy are restricted and controlled by the bank
What is the credit policy for the advance of invoices?
A credit policy consists of a current account that makes available a bank and that allows having an amount of money at the discretion of the holder, using for this purpose the mobilization instruments of such funds that are customary in a current account.
Also, in credit policy, you can make both provisions and impositions of funds. Usually, in the credit policy, a maturity is usually indicated, although it may be subject to tacit or express renewal prior agreement between the parties.
For this reason, the credit policy is one of the most flexible business financing formulas that exist in the banking sector to cover temporary cash lags, being very useful for those companies that have payment periods greater than those of payment in their operations usual.
Usually, the credit policy is formalized before a notary public, establishing a maximum provision limit agreed in the credit policy. As a complement to this credit policy, a guarantee document can be signed in favor of the bank in relation to the maximum credit that the credit policy implies.
In the specific case of the credit policy for the advance payment of invoices, said instrument is used to anticipate the collection of the amount of the invoices issued, which amount may be available through the amount of the invoices that are delivered for collection management. Therefore, the main guarantee of the reimbursement of the anticipated funds is based on the future collection of the invoices issued.
A bank opens a credit policy up to a certain limit. The provisions on that limit authorize you only when the company presents invoices not yet due by its customers (for example, a provision of 80% or 90% of the amount of such invoices is authorized). When the due date arrives and the transfer fee is received (a charge that is monitored by the bank and must be received in the same account), the limit becomes available again.
What costs does a credit policy have?
In relation to the main costs that may arise when contracting a credit policy are the following:
- Interest rate: It is the price set in relation to the capital arranged during the term of the policy. It is calculated on the quantities arranged and can be fixed or indexed at a reference rate (usually Euribor)
- Opening commission: usually consists of a percentage of the credit limit (at most 2%)
- Annual renewal commission: usually occurs at each periodic renewal of the credit policy and at most usually coincides with the opening commission
- Availability commission: it is set at a percentage of the unused balance during the term of the credit policy
- Commission for exceeded balance: in the event of temporarily exceeding the credit limit granted, the interest must be paid in excess of the rate set on the rest
- Commission for early cancellation: it is not very usual and would accrue in the event of early cancellation of the credit policy with respect to the term provided for it
- Study commission: it is also infrequent and may be required by the bank for the fact of the economic-financial analysis that must be carried out prior to the granting of the credit
In addition to the stated costs, expenses will be incurred for the legal formalization of the operation; in this case, costs will be incurred for the notarization of the operation and, where appropriate, of the attached guarantee (s) that may be granted for the formalization of the credit policy.
Legal Aspects Credit Policy for Advance of Invoices
From a legal perspective, the credit policy is a contract whereby a credit institution, usually a bank, is obliged to have at the disposal of a person or entity a certain sum of money within the agreed limit and for a fixed or indeterminate time.
In the Spanish legal field, the opening of credit is mentioned in certain legal regulations. Thus, for example, in articles 175.7 and 323 of the Commercial Code, said legal figure is mentioned; in Article 153 of the Mortgage Law, as well as in Law 16/2011, of June 24, on consumer credit agreements and Circular 5/2012, of June 27, of the Fine Bank, on credit institutions and payment service providers, about transparency of banking services and responsibility in granting loans.
However, despite the aforementioned mentions, there is no complete regulation of said legal figure in Spanish commercial law. Consequently, the figure of the credit policy and, in particular, when it is conditioned or linked to the advance of commercial invoices, has been configured based on the banking practice of said figure, as well as certain jurisprudential pronouncements.
The opening of credit is characterized, therefore, by the fact that the bank undertakes to give money to the borrower or assume an obligation to make a certain amount of money available to the borrower, and the latter undertakes to refund the amount that the creditor delivered directly and immediately when fulfilling the obligation.