Some factoring brokers are a joke

Some factoring brokers are a joke as I found out last week when I had a phone call from someone who had read some of my posts on an internet business forum and wanted advice on which factoring company he should deal with.

He had already approached another factoring broker thinking that they would introduce him to the most appropriate cash flow solution for his own unique funding requirements as per their claims on their marketing material.

factoring feedbackThe reality was far different though as he was inundated with telephone calls from at least half a dozen factoring companies all of whom claimed to offer him exactly what he wanted.

Unless I am mistaken the prime role of the factoring broker is to add value by helping the prospect to negotiate the maze of different offerings. How can putting half a dozen factoring companies in touch with the prospect add value as he could just as easily pick half a dozen names at random from Yellow Pages and cut out a middleman that has served no useful purpose.

For the sake of the uninitiated a factoring broker will receive a commission from the successful factoring company for the life of the agreement which can often be for several years.

It is a highly competitive market nowadays with more and more factoring companies and brokers chasing a limited pool of prospects but in recent years companies looking for factoring are now approaching more than one broker so the craftier brokers are trying to cut out the competition by putting more and more factoring companies in touch with each prospect in order to reduce the possibility of another broker winning the business.

This is wrongIs this ethical? Of course it isn’t as the broker isn’t adding any value to the transaction and they are acting primarily in their own interests.

Those that introduce more than one factoring company to the prospect will often claim that they do so in order that the prospect can select the one that he feels most comfortable with but the truth is that he will discuss his requirements with a salesman who will tell him what salesmen often do but once he has signed up he will be dealing with the operations department who could and often do act completely differently.

This particular factoring broker isn’t a one man band but a high profile company who is also an affiliated member of ABFA – not that this means anything nowadays.

Whilst this article isn’t meant as a sales pitch I would like to point out that 90% of people approaching Factoring Solutions for advice will be introduced to the single factoring company that in our opinion and with the benefit of years of experience will offer the best fit for them. On rare occasions it may not be immediately obvious whether a traditional facility or spot factoring would be the most cost effective solution so we introduce the prospect to one of each.

I may not win as many deals as the broker listed above but at least I can sleep well at night knowing that Factoring Solutions has always acted in the best interests of the prospect and not their own interests

Factoring brokers – the right or wrong way?

I had a call today from someone who owned a recruitment company who was looking at factoring and who admitted straight away that they had already been in touch with a high profile broker but was unsure whether they were independent or not.

It seems that the broker had effected introductions to three factoring companies which is a practice that I heartily disagree with but I can see the advantages to the broker as whichever company the prospect eventually picks the broker will get paid anyway so they always win.

The problem is that I struggle to see any advantages for the prospect though. With the best will in the world all of the factoring companies offer a similar product and they will all claim to offer a first class personal service but the poor prospect will be completely unaware that the service levels actually vary quite considerably between the best factoring company and the worst.

The prospect will end up meeting representatives from three factoring companies who will all tell them exactly the same thing and assuming that they all quote fairly similar rates the company will probably end up going with the factoring company who’s salesman they get on best with. That is probably the worst way to go about things bearing in mind that one of the market leaders has a reputation for it’s salesmen making promises that it’s operational staff won’t keep and consequently renege on.

Leaving aside the question of whether certain brokers have vested interests in whom they introduce prospective customers to which is another question entirely, one has to wonder whether introducing prospects to three factoring companies adds any value to the proceedings at all as the poor old prospect may as well pick three factoring companies out of the telephone book at random and contact them directly.

I have done what I always do and that is to discuss the company and it’s requirements in detail and introduce them to the single factoring company that I felt suited their needs most of all.

Let’s see who wins out – the money making sausage machine or the old fashioned broker 🙂

Factoring and the recent bad publicity

Most of the industry will be aware of the recent bad publicity that factoring has had in the quality press and of course many will be laughing at the discomfort being felt by one particular factoring company but whilst the so called revelations are obviously damaging to that factoring company the fallout out is also damaging to companies looking at factoring for reasons that may not be so obvious.

Two of the case histories used appear to portray the factoring company in a very poor light but most people in the industry will read between the lines and it was fairly obvious that one of the companies mentioned was pre-invoicing and whilst I’m not sure what the other one was up to there was obviously a major problem there if the company attended a meeting with the factoring company accompanied by a friendly insolvency practitioner.

What is annoying about the recent bad publicity is that there is one particular factoring company that I refuse to deal with as I have severe reservations about their ethics and I believe them to be a company that has profited more than others from the demise of their clients judging from the huge number of complaints that I have received about them. This is not the factoring company that has featured in these press stories

I have no doubt that the salesmen from this factoring company will have downloaded the press stories to their laptops and if they hear that a company that they are negotiating with is talking to the other company they will show them the articles in order to win the deal for themselves with the result that all of this adverse publicity will be helping the rogue factor get their claws into yet more unsuspecting companies.

There are industry practices that I am not happy with and would like to see curtailed and most of them centre round the early termination of factoring facilities whether through the insolvency of the client or through the desire of the client to change factors.

Many of the problems within the industry are actually driven by greedy and unscrupulous brokers who hold the factoring companies to ransom. Some of the insolvency practitioner owned outfits make it quite plain to the factors that if they don’t give them the lucrative insolvency work they won’t receive any leads from them whilst some of the very high profile broking firms insist on such high introductory fees that it makes it unprofitable for the factoring companies to take on their introductions which often leads to them looking at alternative ways to increase their profitability.

Perhaps ABFA could gather the factoring companies together and get them to all agree to a maximum commission level to be payable to introducers which might then result in brokers giving enquiries to the most appropriate factoring company and not the one that pays them the most.

Wishful thinking I know

ABFA – No not that one

I guess that quite a few Factoring Blog readers will have come across Brian Moore and his Asset Based Finance Associates by now as he has been nibbling away on Twitter amongst other places for quite a while about his disquiet with the factoring industry and he is leading a campaign for it’s regulation.

I must admit that when I first came across him I had mixed feelings as I agreed with many of the points that he was making but not all of them and to be honest I think that his £5billion clawback tax is a bit silly even if I can understand his reasoning.

I have made my own feelings known in print and in private about the unhealthy relationship between certain factoring companies and the insolvency profession and the fact that putting a factoring client into Administration can be highly lucrative for the factoring company involved.

As perhaps the doyen of the factoring industry I have seen many changes since I first got involved some 45 years ago but it’s only in recent years that the independents have looked at other ways to supplement their income and decided that maximizing income from failed clients is one way to do it and the boss of one factoring company recently told me that one quarter of their profits come from termination fees

Mr Moore had the misfortune to be factoring with the company that possibly has the worst reputation for termination fees but it is a practice that is becoming more and more widespread and the spoils for both the factoring companies and the insolvency practitioners can be quite lucrative.

In recent years we have also seen a proliferation of insolvency practitioners setting up broking divisions in a mad scramble to introduce new clients to factoring companies in order to grab a slice of the lucrative insolvency work from the factors in return which is something I personally find to be disturbing.

If I had my way insolvency practitioners that had broking arms should be barred from taking on insolvency work from factoring companies as it could be said that there might be a conflict of interest or if preferred they could handle the insolvency work as long as they didn’t act as brokers to that factor.

In any event I think that most industry insiders are aware that not everything within the industry is rosy and privately they would agree that regulation of the industry is long overdue and necessary to cut down on some of the factoring company excesses.

For anyone wanting a closer look at the aims of Asset Based Finance Associates the website is www.abfa.co and my own take on regulation of the factoring industry is viewable by clicking the link.

 

Factoring and invoice discounting review of 2011

I guess that it’s been pretty much the sort of year that we all expected, with the factoring industry as a whole pedalling hard just to stand still.

According to the ABFA statistics the total number of companies using factoring and invoice discounting at the end of September was 41,572 which was a net increase of 61 since 1st January.

Interestingly the factoring industry took on 8,000 new clients in the period but lost a similar amount. It’s normal that quite a few of the new factoring clients are phoenix’s of existing clients but my understanding is that less and less companies have risen from the ashes this year.

Stats for the final quarter of the year won’t be out for a few months yet but chatting to other brokers as well as factoring companies it seems that the final quarter has been even more of a struggle with enquiries down and companies taking longer and longer to decide what they want to do anyway.

Over at Factoring Solutions we aren’t bucking the trend with our enquiry levels down on last year but oddly enough we have had quite a good year as the quality of enquiry has been higher and we are getting a higher proportion of deals away even if the lead time is getting longer and longer. In November two different factoring companies both paid away decent deals that first arrived on the scene 18 months ago before prevaricating like mad for a year and a half and finally signing on the dotted line when we had all but given up on them.

I am frequently asked why I haven’t blogged as much this year and the honest answer is that there has been very little to blog about. No factoring companies have gone bust, no new ones have started up and there isn’t much tittle tattle to write about. I notice that a few of my broking competitors have now started to blog but with the best will in the world their efforts seem to be designed to try and boost Google rankings rather than to be read by human beings as the articles seem to be the same “what is factoring” article rehashed every month whereas this blog is actually designed to be read by factoring people and I won’t post just for the sake of it.

There are one of two stories that I have deliberately not run with as most industry insiders already know about them whilst I can’t see it being in the public interest to bring them to a wider audience and to those readers who email me complaining that I haven’t published their responses I would remind you that this is a personal blog and not a forum.

There is just the one rumour lingering that has been around for the best part of the year concerning the supposed take-over of one particular factoring company and I have been told in the strictest of confidence from several sources that the buyer is – a different company each time 🙂

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