Factoring Solutions Blog News, views and gossip from the world of factoring, invoice discounting and trade finance

I had an enquiry yesterday from a company that had been trading for five years and had been with a bank owned factoring company for the last two. The company was profitable and turning over £750,000pa but had complaints about the service levels from their factor.

I mulled it over in my mind and decided to introduce them to one particular company partly as they were fairly close but to my surprise they turned it down as the director didn’t own his own property. Whilst I can understand the reticence to deal with “men of straw” if it’s a new company and nothing much is known about the individuals but in this case we are talking about a well established company who had been factoring for the last two years with one of the big boys.

I contacted a second factoring company who also have a reputation for the quality of their service but whom I didn’t give this lead to initially as my contact was a couple of hundred miles away and asked whether they would look at a company who had been trading for five years, factoring for the last two but where the director didn’t own his own home – to be told quite refreshingly that in the circumstances they would be delighted to look at it.

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We have been receiving an alarming number of enquiries from clients of RBS Invoice Finance complaining that the goalposts have been moved with factoring facility limits slashed as well as a number of other actions taken that were designed to reduce the amount of funding available.

Yesterday’s enquiry was from a company that had been factoring with RBIF for 10 years and had always enjoyed the relationship until recently, complaining that not only had the facility limit been cut but that the collection effort operated by the bank had worsened with telephone chasing cut out in favour of computer generated letters that I think we all know are a complete waste of time and money.

I introduced this company to a factoring company that don’t continually move the goalposts and offer an exceptional service and when I discussed the case with my contact there I laughingly opened the conversation with “I have another disgruntled Royal Bank Invoice Finance client for you”

Posted under RBS Invoice Finance, factoring

The factoring marketplace seems to be changing with far less activity happening than in the past. Companies looking for working capital to fund expansion are few and far between as few companies are expanding at the moment and with many of the major factoring companies losing large numbers of clients due to their inability to ride out the recesssion, the overall market is contracting.

Most of the factoring companies are reacting to the changing marketplace by becoming far more selective in the business that they take on and also increasing rates to compensate for the increased risks

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Amongst the factoring enquiries received in March were a couple that decided not to go along with our recommendation.

The first was a new start recruitment company and having discussed his requirements extensively we introduced them to a factoring company known for their high service levels having stressed that they also offered a refund of all fees paid if the company were unhappy with the service levels.

When they later informed us that they had decided to go with an alternative factoring company that they had sourced elsewhere we were somewhat surprised as we had never heard of them. A little investigation turned up the fact that they had rather an “interesting reputation” and quite possibly it won’t be too long before that company becomes another of the insolvency statistics by the time the factor has finished with them.

The second enquiry was somewhat larger and told us that they had an appointment with the factoring subsidiary of their bank but having read our website they were a little concerned about the possible pitfalls and thought that they might do better with an independent.

We introduced them to an independent factoring company who we thought would be far more suitable for them but the factor had difficulty making contact with them as he never returned calls.

Finally today he was told that a meeting wouldn’t be wortwhile as they had just signed up with the bank’s factoring company. I wonder why having asked whether something more suitable existed he didn’t bother to make time to talk to a company who may well have been more suitable, especially when it is something as important to a company’s health as a factoring facility .

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I guess that with the banks’ reluctance to lend money and the general state of the economy it is only to be expected that enquiries for factoring and invoice discounting would be running at high levels. In the first two months of 2009 Factoring Solutions received 62% more enquiries than in the comparable period last year.

The biggest change in market sector so far has been in recruitment which has historically been the mainstay of factors in recent years with quite a few of our enquiries coming from new starts in this industry. So far this year we have received just five enquiries from this market sector which is a much smaller proportion of the total than usual.

The average deal size has increased over last year and although the factoring and invoice discounting companies are looking far more carefully at the risk involved in underwriting new business we have managed to find a home for a steel importer turning over £20m and a manufacturer of extruded window frames turing over £20m with a factory in Poland as well as a whole host of smaller companies

In addition to invoice finance we have also taken an increasing number of enquiries for trade finance including a wholesaler currently discounting his invoices with one of the independents and turning over £10m a year who wanted funding for purchase orders as well as a watch importer turning over £38m looking for import finance and a publisher of video games with annual sales of £10m who was looking for a letter of credit facility.

Whilst the funders are being considerably more careful than in the past it is still possible to place the more difficult deals as evidenced by the renovator of housing turning over £5m and about to enter a CVA which we found a home for

Posted under factoring, invoice discounting, invoice finance, trade finance

Close Invoice Finance used to have a good reputation for service but things seem to have changed in recent years since the new broom took over the hot seat as we are hearing about rumours of discontent amongst staff to the extent that senior staff are leaving, substantial losses being taken in one of the regional offices and a very hard and inflexible line being taken with clients.

Posted under factoring, invoice finance

We were contacted today by someone with a small company turning over £300,000 per annum who were about to sign a factoring agreement with RBS Invoice Finance.

The terms that this subsidiary of a company owned by the British taxpayer wanted to handle the five customers of this business was a minimum of £6,000 per annum in factoring commission plus an eye watering £1,500 as a setup fee and an even worse 1% renewal fee at the end of the year if they wanted to continue for another year.

Most people would just sign on the dotted line thinking that the terms were pretty much standard but luckily this person contacted ourselves and we were able to put them in touch with an independent who’s costs are likely to be half of that wanted by RBS

Posted under RBS Invoice Finance, factoring

The Chief Executive of the British Bankers Association together with Lord Mandelson told the first meeting of the Government Small Business Forum two days ago that “The UK’s leading banks are committed to helping Britain’s businesses to weather the economic downturn” and that “The UK’s banks want to see their customers flourish even in these testing times. We are determined to help our customers make the most of their businesses and part of that is to ensure they have access to finance as well as independent advice and help when times are tough”

At the same time the factoring division of Bank of Scotland was busy telling one of it’s customers who had the temerity to try and leave after being with them for over two years that they could either wait nine months until the third anniversary of their factoring agreement or stump up with a large fee to buy themselves out of it.

It’s interesting to see that in the day and age of easy in, easy out factoring agreements Bank of Scotland are still trying to handcuff their customers to stop them getting away.

Posted under Bank of Scotland, factoring

Although it seems that the big bank owned factoring companies are feeling the pinch at the moment the level of enquiries being received by Factoring Solutions is still being maintained.

It is traditional in times like this for the larger companies to tighten up their own liquidity by slowing down payments to suppliers and this in turn is causing the smaller companies to look to factoring or invoice discounting to free up their own working capital.

We are also noticing an increase in enquiries from clients of the less efficiently run factoring companies as their poor credit control policies have an even more painful effect on cash flow than usual.

When economic times are tough there are still winners and this time it is the more service oriented factoring companies who are doing better as they are the ones receiving the benefit of clients transferring from their poorer performing competitors.

Ian

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The above was a question asked on the ukbusiness forums recently and I have reproduced the answer given as I think that it may be of interest.

“You’ve actually got the wrong end of the stick as most factoring companies will pay commissions at about the same rate so there is very little incentive for the broker to pick one over the other on commission rates alone.

The real problem with the broking market is that far too many are not as independent as they would have you believe. There are quite a few finance brokers that will handle factoring enquiries but far fewer dedicated brokers who specialise in that area and of the top half dozen (in terms of activity) one is actually owned by a factoring company (although there is no mention of that on their website) whilst two more earn the bulk of their income by doing audit work for factors and only introduce business to selected factors on a reciprocal basis whilst another pays retainers to some unscrupulous factoring company salesmen so that they will put his name down on enquiries that have come in directly so that he receives the commission and in return he will introduce all of his enquiries to them.

Amusingly you were right to be sceptical but for all of the wrong reasons and that is why three of us set up The Independent Factoring Brokers Association which if you have a look at the website will list some of the areas of concern.

No respectable factoring broker would answer your question on the basis of what little information given as the particular industry sector that you intend to operate in, forecast turnover, major customers, payroll or just factoring and even the areas that you operate from would all influence the factoring company that I would recommend.

If you are going to a broker I would suggest that you tell him about your business then tell him that you have spoken to a couple of factoring companies but weren’t impressed and would like to speak to a third. All brokers (including myself) are likely to ask who it was you spoke to but don’t tell them. Even the honest brokers would like to know who it was that didn’t impress you as that adds to their knowledge of the industry but the less than scrupulous broker will try his hardest to worm the names out of you to make sure that it isn’t the company that they were about to recommend as that would then be them scuppered.

The cagey broker will also want to know who you bank with as they will then try and introduce you to your own bank on the basis that you may have been about to do that anyway but this way they get the commission. I don’t recommend a high street bank factor for any new start company as whilst they may be marginally cheaper their rules and regulations are too rigid for many and the poor credit control could well end up costing you more than a facility from a well run independent.”

Ian

Posted under Factoring Brokers Association, factoring