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

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

Posted under factoring

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

Well it is according to one of the major High Street bank owned factoring companies who have been sending out letters to their clients increasing their charges due to rising costs. They even mentioned the increase in fuel prices specifically.

Ian

Posted under factoring

The pharmaceutical retail giant with 3,000 stores in the UK has horrified it’s suppliers by writing to them all to change their payment terms to 75 days from the end of the month in which the goods have been delivered. This means that they could be taking credit of over three months for anything delivered in the first half of the month.

To add insult to injury, not only are Alliance Boots asking their suppliers to bankroll them but they are now insisting on taking a 2.5% settlement discount for “prompt payment”

I have a sneaking suspicion that we will be receiving a few enquiries for factoring and invoice discounting from Alliance Boots customers as they will no longer be able to fund their sales without additional help.

Posted under Uncategorized, factoring, invoice discounting

Recently released figures by the factoring companies’ trade association show that the average credit days taken by factored customers has worsened for the fourth year running from 56 days in 2003 to 63.1 days in 2007

Whilst some may put this 13% worsening down to the economic climate it is interesting that invoice discounting clients record an overall average reduction in credit days taken over the last three years to it’s current level of 55.8 days.

To summarise it would seem that clients of factoring companies that do their own credit control managed a 13% improvement over the factors credit control departments but it’s a shame the association don’t split the overall funds invested into factoring and invoice discounting as it would be interesting to know how much extra interest the factoring companies were able to charge due to their own inefficiency.

Ian

Independent Factoring Brokers Association

Posted under factoring

It has been widely reported that London Scottish Bank is thinking of selling it’s factoring subsidiary in order to raise funds to repair it’s own capital base which seems to be no longer adequate under the new Basel 11 rules.

London Scottish Invoice Finance is one of the smaller factoring companies but has an enviable reputation for service levels coupled with some innovative products and aggressive pricing and we hope that if sold it will end up in the stable of a company that will respect those values.

Time will tell.

Ian

Posted under factoring

The Independent Factoring Brokers Association is about to be launched to add a layer of transparency to an industry containing too many vested interests.

The three founder members will be announced shortly with membership available to all factoring brokers who meet the strict criteria of independence and transparency.

The website is at http://www.factoring-broker.org.uk/ but currently it is only a holding site

Posted under Factoring Brokers Association

It was recently announced that The Forum of Private Business (FPB) had concluded an agreement to introduce their members to Cattles Invoice Finance as they claim to have negotiated special discounted rates with them.

One of the claims being made is that “the discounts we have negotiated with Cattles will save our members an average of £3,000 in the first year.” It would be interesting to know on what basis this claim has been made as the figure seems quite fanciful to ourselves.

Any member of the FPB who is interested in obtaining a quote for factoring or invoice discounting could well be advised to take them up on their offer and then contact ourselves to see if we can obtain a cheaper rate as we deal with all of the major factoring companies and aren’t just tied to one.

Posted under cattles invoice finance, factoring

factoring and invoice discounting companies advanced more than £13billion in the first quarter of 2007 with close on 48,000 UK companies now using this method of finance.

Manufacturing has historically been the largest industry sector in the 40 years that factoring has been around in the UK but it has finally been overtaken by service industries and although there is no further subdivision published it would be our guess that recruitment agencies would be the largest subsector.

Posted under factoring

Factoring companies are now advertising interest rates of 0.5% over Base Rate but many people reading the adverts fail to realise quite what a clever marketing ploy it is.

Taking a typical small company with an annual turnover of £500,000 the customers averaging 60 days to pay and the factoring company funding at 80% of invoices the difference between 0.5% over base rate and a more usual 2% over Base Rate works out to £966 per annum.

Whilst on the surface that may seem to be a worthwhile saving it actually equates to 0.16% of turnover so if the factoring company offering the cheap interest rate has a higher factoring commission rate than the others, that headline catching interest rate will be more than offset by a higher factoring commission charge and the company could end up paying much more in factoring costs.

Posted under factoring, factoring charges