Regulation of factoring companies or the lack thereof will probably come as a surprise to many as despite being a major source of working capital finance the factoring industry is completely unregulated and whilst banks are regulated their factoring subsidiaries are not. As many insiders will know there have been numerous cases where companies have been poorly treated by their factoring companies with no ombudsman or other regulatory body to complain to so in most cases the abuse has just gone unpunished.
Factoring companies used to have their own trade association (The Asset Based Finance Association) and the members agreed a code of conduct between them that appeared on the trade body’s website which was purely a code of conduct and not legally binding. The ABFA was later absorbed into the UK Finance trade association and a new code of ethics was drawn after quite a bit of media scrutiny of some of the industry’s alleged malpractices and this appeared on the website of UK Finance but if it is still there it is well hidden.
The framework that the factoring companies agreed to operate within was never really going to work as it included such things as making the transition between two factoring companies as painless as possible as if a factoring company didn’t wish to lose a client that wanted to move elsewhere it continued to put as many obstacles (mainly financial) in the way to make the transition difficult or even impossible.
Banks tend to take a charge over the assets of a company in the event of them enjoying overdraft or loan facilities but if the company elected to factor it would need the book debts released from the charge. Banks are surprisingly quick to release the book debts if the company decided to use their own factoring subsidiary and were conversely exceptionally slow to release them if the company chose to use a different factoring company with one particular High Street bank being particularly bad in this regard.
Despite the factoring companies trying to get their acts together following media pressure there are still too many complaints to leave the industry unregulated and the proposal for self regulation that the major institutions have put forward will never offer more than a token gesture as the High Street banks tend to be the worst offenders and self regulation will end up as ineffective as it is with the newspaper industry.
Factoring Solutions are aware of whom the major culprits are and refuse to deal with them to feel free to contact us on 01827 707680 with no obligation or cost for our expert advice
Ian Johnston is one of the most experienced specialist factoring people in the UK having been involved in the industry since it’s early days in this country