Block Discounting/HP Credit Line for Automotive Trade
Block discounting caters for auto dealers and credit companies who offer in-house hire purchase. This revolving credit facility is specially designed to free up cash flow by blocking your hire purchase agreements to the bank.
Eligibility
- Minimum annual revenue at least $200K per year
- Operational business incorporated for at least 6 months (preferably 1 year)
- Minumum 30% shareholdings local or PR
Frequently Asked Questions
What is block discounting?
Block discounting is a revolving credit facility primarily for auto dealers. It allows them to raise funds against their future income – in particular, where the dealership is funding hire purchase agreements on vehicles. The bank purchases “blocks” of these hire purchase agreements, while the auto dealers continue to collect and manage the instalment payments by their customers. In the meantime, the bank disburses funds equal to the agreements discounted.
When would I need block discounting?
Benefits of block discounting
There are several ways block discounting can be beneficial to your business. You’ll enjoy:
- Better cashflow by freeing up funds tied up in hire purchase agreements. This will give you access to more working capital
- Flexibility and convenience as auto dealers can plan their monthly finances with a fixed repayment schedule, while keeping track of their finances.
Block discounting is a financial solution widely used by businesses that deal with high volumes of credit agreements, such as those in the automotive, equipment leasing, and asset finance sectors. This funding method allows companies to unlock immediate cash by selling a “block” of future receivables from customer finance agreements to a lender at a discounted rate. Through this approach, businesses gain access to working capital, improving cash flow and enabling them to meet growth demands without waiting for monthly customer payments.
How Does Block Discounting Work?
In a block discounting arrangement, a business sells a package or “block” of receivables—typically from hire purchase, lease, or rental agreements—to a finance provider in exchange for a lump sum. The lender then takes ownership of these agreements and collects the payments directly from the customers, with the original business continuing to service the agreements. The funds are provided at a discounted rate, which accounts for the lender’s profit, as the business receives immediate capital in exchange for the future income stream.
For example, if a company in the automotive industry finances customer purchases through hire purchase agreements, it could use block discounting to sell these agreements and receive an upfront cash injection. The lender provides the business with the capital minus a discount, and the lender then collects the monthly payments from the customers.
Benefits of Block Discounting
Improved Cash Flow
Block discounting helps businesses access cash immediately instead of waiting months or years for payments from customers. This improves liquidity and enables companies to reinvest in their operations, manage expenses, or fund expansion.Scalable Financing
Block discounting is flexible and scalable. As a business grows and generates more credit agreements, it can continue to discount more blocks, making this form of financing adaptable to the company’s evolving needs.Off-Balance-Sheet Financing
Since block discounting can be structured as a form of off-balance-sheet financing, it can improve a company’s financial ratios and make it easier to secure additional funding.Focus on Core Operations
By selling receivables, businesses can focus on their core functions—such as sales, product development, and customer service—while the lender manages payment collection.
Is Block Discounting Right for Your Business?
Block discounting is ideal for businesses in industries where financing customer purchases is standard practice, such as automotive and equipment sales. Companies that frequently create credit agreements with customers can benefit from the cash flow stability that block discounting provides. However, businesses must weigh the cost of discounting against the benefits to determine if the structure aligns with their financial goals.
Block discounting is an efficient way for businesses with high volumes of customer finance agreements to access capital without waiting for payment installments. By leveraging future receivables, companies can enhance their cash flow, support growth initiatives, and better manage their operations. For businesses that require both liquidity and scalability, block discounting offers a reliable and flexible financing solution.
