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