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What is block discounting?

Firstly what is Block discounting and how does it work?

Simply put, the finance company (in this example Novuna Business Finance) buy the rights to the finance agreements including the right to receive all the payments (known as Receivables) that the Customer is obliged to pay.

The Block customer, along with the funder continues to be responsible for any obligations to the Customer under the finance agreements and you also remain the owner of the assets that relate to the finance agreements – the finance company take a fixed charge over those assets. The finance company will appoint you as their agent to collect the Receivables.

You must pay the finance company a certain amount (referred to as the Minimum Sum) of the Receivables each month (even if you do not receive the Receivables from the Customer) and provided you continue to pay the finance company the Minimum Sum for an agreed term (usually 36 months), you can keep any surplus Receivables over and above the Minimum Sum.

An example often helps:

You have written 10 finance agreements on a 36-month term and the total rentals payable under each agreement is £20,000.

You decide to take up block discounting and sell the finance company your block of 10 agreements worth £200,000 for £180,000.

As you would normally, you will continue to collect and pay the finance company the Minimum Sum over the 36-month term. If you fail to pay the finance company the Minimum Sum, they will normally terminate your agency to collect and appoint another agent or collect the Receivables directly from the Customer themselves. The finance company will also take steps to recover from any shortfall in the total Minimum Sum due.