Why brokers recommend Lloyds Bank Commercial Finance

Lloyds Bank Commercial Finance has just circulated a press release stating that any broker or introducer who introduces them to a factoring or invoice discounting client will receive a commission of 40% of their service fee for the life of the facility.

This is significantly higher than the industry norm and is potentially highly lucrative for factoring brokers many of whom will now start to introduce new clients to Lloyds Bank Commercial Finance for the their high rewards alone irrespective of whether that particular factoring company is the best fit for the company or not.

factoring brokers feeding at the troughRegular readers of the Factoring Blog will be aware that my opinion of the average factoring broker is already pretty low having referred to their behaviour as vultures in my previous post but the likelihood is that many brokers will shed off their vulture like scavenging and take on new personas  of the porcine kind as they queue up to feed at the trough that is Lloyds Bank Commercial Finance.

Unfortunately their behaviour will lower their standing even more as the main reason for the existence of specialised factoring brokers is to offer companies the benefit of their expertise and not to line their own pockets.

Discussing this press release with some of my factoring friends I was told by one that he had approached a new broker only to be told “Why should I deal with you when Lloyds Bank Commercial Finance will pay me so much more. That should really serve as a warning to any company who uses a factoring broker and finds himself introduced to Lloyds as it is highly likely that the introduction has been made in the broker’s best interests and not your own, which is a shocking state of affairs.

Another factoring friend asked who was ultimately going to be paying for this huge commission and they suggested that it was either going to be the client in the form of higher service fees or else the service levels would be pared back even more with an effective reduction in the factor’s sales ledger administration and credit control creating savings to fund the commissions.

A third factoring friend told me that a few of their introducers had already been in contact asking whether they would match Lloyds only to be told that they would gladly do so as long as the introducer didn’t mind them increasing the rates to the client to cover the increase as they didn’t intend to reduce their service levels to compensate.

Factoring Solutions  prides itself on offering an ethical broking service only ever introducing clients to what we consider to be the most appropriate factoring company for their needs. We have never dealt with Lloyds partly because there are independent factoring companies that offer higher service levels at comparative costs and we won’t be starting to introduce business to them now despite the high rewards on offer from them.

If any company wishes to speak to an independent factoring broker who places his clients’ needs above his own please feel free to contact Factoring Solutions on 01827 707680

Factoring brokers – a new low

I had lunch last week with a director of a factoring company and he laughingly thanked me for not trying to sell him the client list of First Capital Factors which was a small independent factoring company that had recently gone into administration.

factoring vultureIt seems that once the Administration became public knowledge several vultures factoring brokers obtained a list of their clients from Companies House and tried their hardest to hawk the list around to a few factoring companies as well as trying to get their clients on board so that they could place them elsewhere, earning nice fees in the process.

As if that wasn’t bad enough someone calling herself Clair Tweedy started contacting the clients claiming that she worked for NACFB which she stated was part of the Government and she told them that funding of First Capital Factors clients would cease within 90 days but that she could help them relocate to a new factoring company.

Yuk – despicable behaviour but having been broking for 17 years I shouldn’t be surprised by anything any more from the huge commissions that some of the larger factoring brokers demand for introducing clients, to the churning of clients at the end of the year to get another introductory fee but contacting factoring company clients and blatantly misrepresenting who you are is a new low even for this industry.

factoring broker vultures feeding frenzyMy understanding of the situation is that Leumi ABL have taken over the debtor book of First Capital and have continued funding but those companies that don’t really fit into their client profile will be asked to find alternative factoring arrangements but will be given time to do so and will not just be thrown out on their metaphorical ears.

Anyone that wishes help in finding another factoring company but doesn’t want to deal with one of the vultures currently pecking at the carcass please don’t hesitate to contact me if you want to deal with an ethical broker who refuses to join in with this unseemly feeding frenzy


Ian Johnston – Factoring Solutions – 01827 707680

Nucleus Commercial Finance join the ranks of knockers

KnockerRegular Factoring Blog readers will be aware that I have a bee  in my bonnet about companies within our industry that promote themselves by knocking their competitors and I have already outed Market Invoice and Simplicity for these practices and now it appears that Nucleus Commercial Finance has joined this select band.

Not only have Nucleus just come out with a promotion designed to frighten people away from their competitors but I received details of their E Book in an exceedingly patronising email from someone that I had never heard of:-

Hi Ian,

When securing invoice finance for your clients, you need to make sure they understand the additional fees the finance might come with, and the total overall cost. Question is, are you aware of the potential hidden fees?

No hidden feesThe E Book talks about the hidden fees in commercial loans but those allegedly hidden fees include take-one fees so they are obviously talking about invoice finance. Whilst I don’t deal with every factoring company and are therefore not privy to their operations, the ones that I do deal with and that includes the independent market leader are quite open about their additional fees with at least one giving all prospective new clients a schedule of possible additional charges along with the agreement before the facility has gone live.

Examples of the OTT quotes include:-

The Arrangement Fee –

A very common one-off admin fee to cover the costs associated with arranging the loan. Many companies are caught off-guard by the arrangement fee as it is often not presented upfront in the quote.

The amount varies and can be substantial: anywhere from 1% to 10% of the total quote. Payment is required at the start of the contract.

I have never come across any company that has been quoted 10% as an arrangement fee as to be honest the amount is just ridiculous. Most factoring companies charge a fairly nominal amount, typically £500 or so to cover the cost of documentation.

The take-on fee

A one-off service charge for recovering payment owed to your company from outstanding customer invoices. When work has been invoiced but payment has not been received, financial assistance in the form of invoice finance can be considered – at a price.

This take-on fee covers the loan provider’s costs associated with providing you with the amount owed to you, allowing your business to run as usual, and assuming responsibility for the unpaid invoice.

How much does it cost?

Typically 2% of the total value of invoices. The larger the invoices, existing or new, the larger the fee.

No hidden feesWith the exception of much larger invoice facilities it is fairly common knowledge that most factoring or invoice discounting clients will pay two charges. A service fee based on the invoices factored and interest on the funds advanced. These fees will be the first thing that most potential clients will ask about and will generally be confirmed by the factoring company in a written quote prior to being included in the Agreement so to say that they are hidden is rather laughable.

Charge per invoice schedule (or charge to fund same day invoices)

What is it?

This fee is generally considered the most unwarranted of the lot. Simply put, it is the cost your company will pay to a financial institution when funds are paid on the same day the invoice is processed. This service is more often than not presented as part of the deal, without making mention of any penalty fees.

How much does it cost?

At a cost of 1% of the total invoice amount per transaction, this lack of disclosure is, in our view, dishonest business practice.

No hidden feesNucleus may claim this to be the “most unwarranted of the lot” but again they aren’t presenting a true picture. Most factoring companies operate on the basis that funds will be available 24 hours after the invoices have been received in order to give them time to carry out their normal checks and due diligence etc but they will occasionally allow their client to draw funds early but this will incur a fee. Speaking as an ex operations type I am well aware that clients that want their payments prematurely cause a great deal of disruption to the daily work flow and the practice is therefore deliberately discouraged.

The final page of the E Book contained an alleged case study supposedly showing how one of their clients had been the victim of alleged hidden fees but unfortunately the Case Study doesn’t have the ring of truth about it.

Case Study

One of our clients is a printing firm who, before they started working with us, had been granted a funding line of £200,000 with a discount fee of 1.5% above the base rate (0.5%).

• The money was to help them grow after winning a large new client.

• They thought their fees would total £75,000 over three years.

Their loan facility contained several hidden fees:

This meant:

Arrangement fee – 5%

Survey/audit fee – £500 every 3 months

Trust account charge – 0.2% of paid invoices

Take/on fee – 2% of invoice value

They paid £10,000 as an arrangement fee and £4,000 as a take-on fee for invoices they brought on board

Every quarter they paid £500, adding up to £6,000 over the three years

They paid £2,550 for using the trust account their invoices were collected through

The true cost of the loan was £97,550 – a massive 30% increase on what they thought they would be paying!

 As I have already mentioned the case study doesn’t have the ring of truth about it as firstly they were allegedly looking at the cost over three years which is highly unusual but makes for a larger figure in the case study and secondly all of the costs and fees that they are complaining about will have been outlined in the original Offer Letter as well as the Agreement that the directors signed.

I do wish that companies such as Nucleus, Simplicity and MarketInvoice would promote their themselves by outlining what they have to offer and not by publishing half truths about what their competitors are allegedly doing and if I may finish by offering some advice to Nucleus on the wording of their emails I would suggest as someone who has been in the invoice finance industry since before the sender of the email was born that you look at the wording of future communications more carefully as I doubt whether I am the only grey haired broker who doesn’t like being patronised.

EDIT – A couple of interesting facts came to light after I published this blog post thanks to my ever helpful readers and they can be found in the comments section

Beware the hidden costs of recruitment finance – Simplicity rhetoric

Simplicity is one of those recruitment finance companies that often try and have a dig at traditional factoring companies as a means of self promotion and I have noticed in the past few weeks that they have published a couple of articles that try to promote themselves by pointing out negatives in their competitors’ offerings that are unfortunately often just not true at all.

There are several factoring companies that offer dedicated recruitment finance facilities and as a large proportion of the enquiries received by Factoring Solutions are for recruitment we have relationships with many of the providers and deal actively and frequently with three of them.

factoring mythFirstly Simplicity claim that:-

Many factoring providers will attempt to seduce you with headline rates, but this is likely to be a false economy for several reasons.

Firstly, you will pay interest on the amount advanced to you and there will be an additional amount to cover the finance provider’s administration costs (i.e. service fee).

In traditional factoring there will normally be two charges as Simplicity have stated but the factoring companies that offer recruitment finance facilities will have just the one charge and frequently that single charge will be lower than that available from Simplicity.

factoring mythSecondly, the longer it takes your client to pay the more expensive your factoring facility becomes, with interest continually accrued over time

Again this is incorrect as with recruitment finance facilities (which is what the title of their article was about) there is a single charge levied on sales and slow payers will not result in higher costs.

factoring mythThirdly, perhaps most important of all, factoring by default imposes a concentration limit – the maximum amount the provider will cover for a single client. If you work for a large client, that accounts for as much as 20% of your total monthly billings and the concentration limits in place restrict you from gaining access to those funds, your business is going to run into some major problems – will you have enough set aside to pay out what you need to? can your business even continue to trade without these much-needed funds?

That may have been true a few decades ago but not nowadays and Factoring Solutions has been placing clients with factoring companies offering recruitment finance facilities to companies that only have a single customer so the concentration will be 100% which makes the above comment slightly ridiculous as well as patently untrue.

factoring mythSuppose your factoring provider offers you a limit of £75k or even £150k – at the outset that may seem attractive. However, what happens once you hit that cap?

Quite simply you won’t get any money paid to you that week, which means you cannot pay your workers or other essential expenses either. All of which could see the recruitment business you have worked so hard to build and grow fall by the wayside within a matter of days. Can you really afford to take that risk?

The above comment is a bit naughty as that just doesn’t happen. Every finance provider will set a limit but most recruitment finance providers will be happy to increase that limit to accommodate growth within your company as their aim is to assist your growth and not hinder it.

Thumbs Down from Factoring BlogIt’s a shame that Simplicity feel that their marketing effort should be aimed at knocking their competitors as not only are the majority of the negatives that they have talked about just not true but they have left out perhaps the most important aspect in the whole arena of deciding which recruitment finance provider one should go with and that is the service levels on offer and judging by the comments made by their disgruntled clients when they contact Factoring Solutions it isn’t hard to see why.

By all means get a quote from Simplicity then feel free to contact us and we will introduce you to a traditional factoring company that has a specific recruitment finance offering that will be cheaper than Simplicity, won’t have a separate interest charge and won’t hamstring growth with ridiculous concentration limits.

Contact Factoring Solutions on 01827 707680 for friendly and professional advice free of charge

Awards – the ultimate farce

As most regular readers will know I consider the various annual factoring awards to be little more than a joke for a variety of reasons but one Factoring Blog reader very kindly sent me a link to what is probably the biggest farce to date as it seems that a factoring broker called Fund Invoice has been shortlisted for Small Business of the Year in the 1066 Business Awards of 2016

Eligibility for this prestigious award is in their own words:-

This award is open to all businesses with less than 10 employees that can demonstrate exceptional performance, growth and market leadership.

Whilst FundInvoice LLP may well qualify as being within the two year cut off it most certainly doesn’t fall within the spirit of the rules as the company was formed in September 2013 just two weeks prior to it’s previous incarnation Cashflow Acceleration Ltd being plunged into Administration owing a phenomenal amount of money to HMRC and with an equally large overdrawn directors loan account resulting in one of it’s husband and wife director team not only being made bankrupt but also being barred from holding a directorship for four years which is pretty serious stuff.

Thumbs DownThe liquidator’s report stated that they appointed accountants to try and reconstruct the company’s accounts from 2008 onwards to try and confirm the accuracy of the overdrawn directors loan which was in excess of £400,000 but in their own words “despite numerous attempts to collate the necessary information to reconstruct the accounts over an extended period of time this task has proved unsuccessful.

I have no idea who it was that nominated FundInvoice LLP for the Small Business of the Year award and I’m not cynical enough to think that it had anything to do with the fact that they were sponsoring one of the other awards but whilst I feel that many of the other factoring award winners have been unjustified and more to do with lobbying than merit in this case I feel that it is entirely wrong that the phoenix of a company that screwed over us taxpayers so royally should be eligible to tell others that they are the Small Business of the Year – that is if they actually win



Interesting changes to invoice finance trading platform

One of the more high profile growth products in the invoice finance industry is the use of invoice trading platforms which is a form of invoice finance that is becoming better and better known thanks to the intensive PR efforts of one of the major players.

Of the two major players I far prefer the Platform Black operation to that of Market Invoice as the company is run by experienced factoring professionals who are available to speak to if there are any queries or questions whereas as far as I can gather Market Invoice is run by a sophisticated piece of software and the customer service is all but non existent judging by the complaints received from dissatisfied users who have tried it but prefer the offerings of companies with people that they can talk to.

Invoice trading online, a disaster waiting to happen?

I have often thought that invoice trading platforms are a disaster waiting to happen as very little (if any) due diligence is done on the invoices being sold by at least one of the major players and if any invoices become uncollectable it isn’t the trading platform that will suffer as it’s not their money anyway but it’s the investors who will lose out as they invariably have no in depth knowledge of the background or validity ofo the invoice that they are funding.

approved by factoring blogPlatform Black have come up with a rather novel concept by offering to underwrite the first 10% of any losses suffered by an investor which I think is as admirable as their comment that they should “man up and put some skin in the game” is absolutely dreadful.

The fact that they are claiming to have only suffered one bad debt in the last 15 months is testament to the benefit of having the company run by factoring professionals even if they seem to have the PR skills of a Chicago rapper.

Long may this continue.

IGF Invoice Finance has been sold

I was rather concerned when I read the press release about the recent sale of IGF Invoice Finance as it was using phrases such as “Spring Ventures, a private equity investor specialising in management buyouts of UK companies with strong growth potential, today announced that it has backed a group of experienced commercial lending professionals to buy…..”

I am old fashioned enough to prefer factoring companies that are run by factoring professionals and not commercial lending people as the disciplines are completely different and recent history have seen factoring companies going backwards after having been acquired by “experienced commercial lending professionals”.

We have already seen one of my previously preferred factoring companies SME Invoice Finance taken over by a bank only to lose it’s soul and turn into yet another bank owned sausage machine that says one thing and does another.

Empty OfficeUltimate Finance used to be high on my preferred list of factoring companies but is another that once taken over lost most of it’s senior factoring personnel to be run by money boys, one of whom recently stated that he wasn’t happy paying introductory commissions to brokers and thought it would be more profitable to cut out intermediaries.

To a company that relies almost exclusively on introducer lead new business that comment made about as much sense as suggesting that they get rid of all the staff to save on wage costs.

IGF Invoice Finance is an interesting company with a chequered history as many years ago they had an excellent reputation for their service levels which was ruined at a stroke when they introduced a new computer system without testing it properly and without running it in parallel with their existing system as it failed to work as expected resulting in their clients scrambling to find alternative factoring arrangements.

Broken ComputerAs if that wasn’t enough they decided to expand by taking over another factoring company with Dynamic being the recipient of their affections. Unfortunately Dynamic were less than enthusiastic about being taken over so refused access to their books whereupon instead of doing the sensible thing and looking for another target IGF launched a hostile bid without doing due diligence resulting in them managing to buy the company and subsequently finding that the debtor book they had acquired was of a lower quality than they expected (that’s me being diplomatic)

Having committed two cardinal errors IGF brought in a completely new management team that has managed to work through the problems caused and for the last few years has earned a reputation as a well run company with a good reputation for service levels.

Let’s hope that this situation continues but I do find it a major concern that the press release is full of details about the new commercial finance boys that will be involved in the running of the company but has absolutely no mention of the existing management team that have given IGF the reputation that it has in the market today.

Factoring companies short sighted attitudes

In the current economic climate factoring companies are finding new clients harder to come by so they are supposedly making a bigger effort than ever before to hang on to existing clients although too many take a short sighted view to earning profits which works against long term profitability.

I was chatting to a factoring company salesman last week who happened to mention that they were in discussions with a client of a competitor who was being “ripped off” (his words, not mine) by his existing factoring company.

The company started factoring a couple of years ago as a new start and paid an appropriate factoring commission for the small turnover and risk. In the intervening years turnover had grown to £2.5m and they were still paying the same rate .

factoring company commission rateUnless there were serious problems with the facility I think that everyone would agree that a commission rate for a new start turning over £150,000 is completely inappropriate for a company that the factor has two years ledger experience of and has grown fifteen fold so in my mind it serves them right that they are about to lose this cash cow and I can readily understand the factoring company salesman’s righteous indignation

Two days later I had a phone call from another company who had a remarkably similar story to tell as they started factoring four or five years ago when turning over £250,000 and were given an appropriate rate for the size plus a facility limit of £200,000 which was quite generous at the time.

The reason for the call to myself was that this company had also grown significantly to it’s current level of £2.5m turnover but not only was their factoring company unwilling to offer much of a rate reduction they had also refused to increase the facility limit.

The client was effectively operating on an Initial Payment of 25% and was so hamstrung that they had resorted to borrowing money to fund the gap that factoring was supposed to fill.

What made this interesting was that the factoring company involved was the very same one that was trying to take the moral high ground on the first case.

factoring company short sightedSpeaking as someone with a predominantly operation background I find this sort of greed to be very short sighted as whilst both factoring companies have earned a high income in the last twelve months if they had been less greedy they would have continued to earn a smaller income for potentially many more years.

I speak to a lot of factoring company salesmen and they all agree that life is tough at the moment yet there are salesmen for two factoring companies whose first few clients will not help to grow their employer but will simply replace clients that their company’s shortsightedness has lost them.

If any factoring company thinks that will get away with excessive rates for long they are mistaken as there are a number of brokers out there who spend their day contacting factoring company clients to find any excuse to move them on and thus earn themselves a commission.

That is not the business model of Factoring Solutions as we don’t cold call anyone but if you feel that your company is being charged excessive fees please feel free to contact Ian Johnston on 01827 707680 for a friendly, informal chat with no obligation whatsoever and of course, completely free of charge at all times

A factoring broker’s unproductive day

I had two telephone calls yesterday enquiring about factoring.

The first was a recruitment company who had a funding and back office facility with a back office funding company that I had never heard of but who had been causing them problems for a while with their poor service which was why they were now looking to change.

I don’t really like these back office companies that obtain their funding by “refactoring” with a proper factoring company as not only does the client lose part of their identity but also any problems suffered by the funder can filter down to the client whether the fault is theirs or that of another client.

This particular funder registered a charge to RBS Invoice Finance six years ago but six months later that charge was satisfied and a further charge granted to Bank of Scotland.

Two and half years later that charge was satisfied and a further charge registered to Lloyds TSB Commercial Finance but that only lasted nine months until the business transferred to Leumi ABL where it remained until transferring yet again to Close Brothers eighteen months ago.

Hardly a steady business relationship and the big red flag at Companies House stating that the Annual Return is overdue doesn’t inspire a great deal of confidence either.

I suggested that the company might be better off utilising the services of one of the factoring companies that ran their own payroll services so there was no hidden middleman to potentially upset the apple cart and that would also have another positive advantage that the company would regain their own identity instead of being subsumed into the funding company’s own identity but the lady that was talking to me decided that she didn’t want to operate that way and was happy as she was but would prefer a different funding company.

It was fairly obvious by the conversation that she wasn’t the decision maker but was happy with the way that things worked currently and didn’t want to work with a proper factoring company.

Fortunately I’m too long in the tooth to have to argue with someone who clearly thinks she knows best so I ended up telling her that regretfully I couldn’t help her.

A couple of hours later I had another call from someone looking for a factoring company who wanted to know what my charges were. I explained that I was a broker and my job was to source the most suitable factoring company for his particular needs and there would be no charge for doing that to which he replied that he wanted to contact factoring companies direct and didn’t wish to use a broker. I wished him good luck in sorting the wheat from the chaff and finding himself a factoring company that performed as well as they claimed and ended another unproductive call.

Hopefully today might bring enquiries from people who aren’t quite so set in their ways and might listen to someone who knows what he talking about

Christmas entertaining and marketing foolishness

The Christmas entertainment season is now under way and yesterday I was a guest at Bibby’s Birmingham office bash where we all met in a well known hostelry in the city centre prior to moving off to a restaurant for lunch.

Christmas drinksThere were probably twenty of us milling around when a chappie came in and wandered around looking lost until he came up to us and asked “I don’t suppose that you lot are Ultimate Finance” at which I laughed and said “You’ve got the dates wrong as that’s tomorrow”

Mein host then suggested that as he was here he might as well have a drink with us and as one of the original invitees had dropped out he may as well join us for lunch, which he subsequently did.

I held up posting this until such time as it was unlikely that anyone from Ultimate would read it prior to them all meeting up and cross examining their guests to save him embarrassment.

I was invited to today’s do but unfortunately I couldn’t make it which is a shame as I would have liked to watch ********’s embarrassment when he spotted me there 😀

On a completely unrelated note I had a telephone call this morning from Rachel at Impact Marketing who wanted to make me rich.

UnbelievableShe said that they had been acting for a factoring company and had been so successful in generating business for them that the factoring company could no longer cope which is why they had targeted Factoring Solutions as a replacement to act for.

When I politely suggested that there was no such thing as a factoring company that couldn’t cope with new business and most were struggling to attract sufficient new clients she became quite indignant and suggested that just because I was struggling that doesn’t mean that other factoring companies were, whereupon she wished me a Merry Christmas and the line went dead.

It’s a shame that people like Rachel have to resort to bull**** as I doubt whether anyone would be either taken in or be impressed by such blatant rubbish and it’s also a shame that she didn’t do a couple minutes of homework first whereupon she would have found out that Factoring Solutions wasn’t a factoring company.

Of course if there is a factoring company out there who has been so inundated with enquiries and new business that they can no longer cope please feel free to get in touch with me and I will happily post a retraction as well as offer to look after the excess leads that they can’t cope with.

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