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

The Asset Based Finance Association (ABFA) released their statistics earlier this month which summarised the factoring and invoice discounting activity of their members for 2008

The headline figures were that the number of active clients at the year end were down marginally to 48,152 whilst the advances outstanding at the year end rose by nearly 8% to £17billion and I guess that the initial reaction is that the figures are typical of what one might expect in the current economic climate with increasing pressure on companies cash flow resulting in higher funding levels overall.

The two interesting statistics that caught my eye were firstly that of the 48,152 clients using factoring and invoice discounting at the end of the year 248 of them had annual turnovers in excess of £100m

Advances to clients at the year end were £17 billion but a quarter of that sum was advanced to the 0.52% of clients with sales in excess of £100m and those figures skew the averages so much as to make them meaningless.

The other statistic that intrigued me was that the largest client sector in terms of annual sales was the zero to £500,000 sector with 18,500 clients which represented 39% of the total. The number of clients was virtually static compared to the end of 2007 but the advances outstanding to them at the year end was up from £542m to £908m which was a huge 40% rise

One would think that in the ordinary course of events that should be impossible. If we asssume that the average client has an advance rate of 80% and always has done – how could the overall average jump by 40%.

One possibility is that the figures include a large number of terminated accounts whose balances have been inflated by “extra fees” but the difference between 2008 and the previous year is £360m which is a hell of a lot of fees so I sincerely hope that is not the case.

If anyone has any other theories please feel free to post them here.

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Posted under Factoring, Factoring companies, Invoice discounting

The factoring market has long been very competitive but when prospective factoring clients compare quotes from a number of different providers they often just look at the headline rates without bothering to delve any further into the small print.

We came across a company recently who banked with RBS and had naturally approached RBS Invoice Finance for a factoring quote. According to the prospect the quote for factoring the debts of this £300,000 pa turnover company was “a little on the high side” but it wasn’t until they emailed the quote over that I realised quite how high it was as it included a setup charge of £1,500 which is three or four times the size that most of the independents would charge but the real sting in the tail was the 1% renewal fee which I must admit was a new one on me.

Asking around it seems that RBS Invoice Finance wasn’t the only factoring company to charge renewal fees as HBOS also used to do it.

I was discussing a quote for an invoice discounting facility with a provider today and I asked him whether he had quoted a renewal fee and his reply was that his company didn’t charge them whereupon I suggested that he should have put renewal fee – none in his quote as we know that we are tendering against a couple of bank owned factoring companies who may well have renewal fees.

Whilst discussing renewal fees the factor told me that he had seen a quote from RBS Invoice Finance that included a termination fee. This wasn’t a fee in lieu of notice for an early termination but would have been payable on top of the balance of any minimum fees whenever the client decided that he no longer needed his facility.

It’s getting to be a bit of a minefield out there.

Posted under Factoring companies, RBS Invoice Finance

We had an enquiry from a company today that has been factoring with one of the better known factoring companies and had a successful relationship until they moved from one branch to another.

Things went very quickly downhill as the factor seemed to have a number of internal administration problems including a large staff turnover but with more staff leaving than being replaced. The client was told on more than one occasion that they couldn’t cope with the clients that they had on the reduced staffing levels and on one occasion when they asked why the money hadn’t been sent over was told that the invoices hadn’t been input into the system as the data entry girl was off sick.

When the client politely suggested that the service wasn’t as good as it had been in the previous branch she was told that if she didn’t like it “she could sling her hook”.

I think that this comment will probably win the Factoring Blog client relations award of the year and it’s only February.

Posted under Factoring, Factoring companies

Factoring companies have historically charged interest at a percentage over Base Rate ( say 2.5% to 3%) but have built in to the Agreement a minimum Base Rate of, say 4% so their current lending rate of 7% per annum is effectively 5.5% over Base

In the light of the recent reduction of Base Rate to levels previously unimagined many factoring companies have switched their interest charging structure to a percentage over Libor so that they can maintain their margin on lending but we were talking to one of the independent factoring companies that we deal with who informed us that they do not have any minimum built into their agreement and their current lending rate is between 4% and 4.5% per annum.

The irony of this is that their factoring interest rate is now considerably cheaper than that charged by the bank that funds them

Posted under Factoring companies

Most of the recent bad publicity about factoring and invoice discounting companies having their facility limits reduced concern the high street bank owned factoring companies as they revert to their banker’s mentality when the going gets tough but it isn’t just them that are restricting their clients’ funding as we had an enquiry from a client of an independent factoring company who was getting into financial problems because his factoring company wouldn’t increase his facility limit to allow him to grow.

The company is involved in the recruitment industry, has been trading for a year and is struggling to turn over £1m a year as their factoring company are restricting their facility limit to £100,000 and refusing to increase it. The company have been awarded further contracts to supply more staff in January but are on the verge of turning away the business as they can’t afford to fund it as the factoring company who claim in their marketing material that one of the advantages of factoring with them is “Flexible finance that grows as your business grows” are not living up to their pledge.

I won’t name the factoring company quite yet just in case there is more to the story than meets the eye (there often is) but we have arranged for one of the independents with a more commercial outlook to visit on Monday so I will report back on the outcome at a later date.

Posted under Factoring, Factoring companies

a company acting as lead generators in the litigation of the misselling of payment protection insurance policies. Like the medical reports businesses that we have seen before this case involves fairly long credit periods with the customer taking up to eight months to pay but the customers are established multi partner firms of solicitors and not one man bands. Each case is validated by the solicitor before it is taken on and once accepted my client’s fee of £400 is payable win or lose.

The company is turning over £200,000 pa and even if every invoice wasn’t paid until eight months the debtors wouldn’t be more than £128,000 and a 50% IP would result in an investment of only £64,000

If anyone is interested in taking a closer look at this case please contact me.

Posted under Factoring companies

One of my contacts told me that the highlight of the annual factoring jamboree currently being held in Barcelona was a lecture by a couple of Americans on mezzanine finance in which they appeared to have little grasp of what the subject was that they were lecturing on with each of them often contradicting the other when he had made a mistake in his presentation.

It would seem that the number of representatives from factoring companies was dwarfed by the huge delegation from the world of insolvency as they utilised the opportunity to try and butter up the factors all in one place

Posted under Factoring companies