The so called alternative invoice finance market

For many years factoring and invoice discounting has been referred to as alternative finance but in recent years a new breed of invoice financier has emerged who are claiming the sobriquet for themselves and consigning traditional invoice finance to the mainstream in the process.

Many factoring insiders have concerns about the viability of the business model with little or no due diligence done on new clients, little or no security taken in the event of client or customer failure and quite a few complaints being heard about the customer service or lack thereof from one of the platforms in particular with one factoring company telling me that they have received quite a few enquiries from companies who want to switch out of internet based invoice finance to traditional factoring due to the poor customer service, not knowing what rates will be levied and the high charges if an invoice becomes overdue for payment.

It is a fact of life that brokers will introduce potential business to a factoring company but will often lose out to another broker and/or factoring company and this happened to me recently and I lost my first “deal” to an internet platform in the process.

Thumbs DownThe prospect was a construction related company turning over £10m but what concerned me (apart from the lost commission of course) was the minimal amount of due diligence that was done.

There aren’t that many mainstream factoring companies that are happy to fund construction related companies due to a variety of contractual issues but those that are, do so with a full understanding of the risks involved having inspected the underlying contracts in the process and some employ the services of a QS to ensure that they understand the risks fully.

The so called alternative invoice finance funders seem not to bother too much about understanding the contractual issues and rely more on the size and strength of the customer.

Do the many hundreds of investors looking to maximise the returns on their savings understand the risks involved every time they line up to provide funding for construction related invoices?

The alternative platforms are the darlings of the media at the moment but I wonder how much of that is down to their expertise in marketing and self promotion rather than anything else.

Personally I think that the next year or two may see some changes with at least one of the players out of the marketplace entirely and another modifying and strengthening it’s criteria and requirements but as with everything if the concept turns out to be successful we will see loads more queuing up to get into the market

Anyone want a cash back on their factoring charges?

A few weeks ago I gently poked fun at a factoring company for one of their press releases on revolutionizing the industry but more for the way the press release was written than for what they were trying to do but the same company have now gone one better by introducing a factoring facility which offers a cashback at the end of the first year of 10% of the fees paid which whilst being of benefit to the client won’t be liked much by many of the unethical broking community.

cashback of factoring chargesMany factoring companies pay a percentage of the first year’s minimum annual fee paid by their clients, to the introducing broker which is why the more unethical broking outfits will try and churn the client at the end of the year so that they can earn another fee from a different factoring company. Ultimately that benefits no-one except themselves but it will be interesting to see whether the introduction of a 10% cashback of the charges paid will be enough to stop this whirlygig of clients or whether the more unethical brokers will just not introduce clients to them if they feel that they may not be able to churn them at the end of the year.

It isn’t just the rebate of the charges that make this new offering of interest as the facility carries no up front fees at all and no minimum charges. Additionally they won’t be screwing their clients with BACS charges or online access fees either and the charging structure is simplified as there will just be one charge payable on sales as the interest charge has been abolished.

The icing on the cake is that as well as not having any minimum fees payable the facility carries just a 28 day notice period making it very easy to exit if one so wishes without penalty.

Similar facilities have been available for some while now but this one is suitable for companies who require funding up to £100,000 which probably equates to turnover levels of up to £750,000 and if anyone wants any more icing on the cake the factoring company involved is one with a very good reputation for their high service levels.

Any company that feels this type of facility could be of interest, my contact details are in the right hand sidebar so feel fee to give me a call without any obligation or charge safe in the knowledge that Factoring Solutions has never, ever tried to churn a client for their own gain.

Director disqualified for four years after collapse of factoring broker

I expect that a few factoring insiders raised their eyebrows in September 2013 when Administrators were appointed to a supposedly successful fairly high profile factoring broker owned primarily by a husband and wife team plus one other with all three being directors.

factoring broker disqualifiedAlthough it doesn’t affect the general public it doesn’t do the whole factoring industry any favours when companies that people turn to for financial advice end up going bust especially when one of it’s directors is banned from holding office for four years

I noticed at the time that shortly before the appointment of the Administrators a new company had been formed by two of the three directors of the existing company with just the wife not appearing to hold office but according to her LinkedIn profile she is employed as a researcher for them.

Operations were switched over to the new company so seamlessly that to the outside world it was just a change of name and it wasn’t until a further two years had passed that the full horror story unravelled by way of Administrators reports

It transpires that the factoring brokerage plus an associated company that went bust at the same time had racked up huge debts to HMRC of hundreds of thousands of pounds with one of the directors having an overdrawn directors loan claimed to be in excess of £400,000

The matter was treated seriously enough that one of the directors has now been disqualified as a director for four years as well as being made bankrupt. Full details of the disqualification and it’s underlying reasons are available from the disqualified directors database

Thumbs DownMost factoring brokers don’t go bust in such a spectacular manner as they tend to modify their life styles in line with the success or otherwise of their broking and if they can’t make a success out of factoring they quietly shut up shop and do something else.

In this instance there is something not quite right as a debt to HMRC in excess of £400,000 is huge but that pales into insignificance compared to an overdrawn directors loan of £400,000 plus and it sticks in the craw that these people are still advising companies on financial matters with that sort of history behind them


What’s going on at Aldermore part two

Three years I blogged about alleged problems that Aldermore were having in their Maidstone office to be told by “Nigel” “just going through a period of change and re-organisation, new staff and procedures are being introduced and a normal (better) service will be resumed as soon as possible”

Fast forward three years and Aldermore seem to be at it again as the over worked and under rewarded staff in the Maidstone office (their words, not mine) have been told that they are today entering into a 30 day consolidation period and that the office may close in December when the lease expires on the premises. This will mean that the back office functions of Credit Control and Cash/Invoice Processing may all move to the Manchester office so Clients can expect yet another fall in service during this transition.

My insider carried on to say that “After working for Aldermore (prev Absolute) and Cattles IF before that I would strongly recommend against anyone seeking employment with the company, given my experience with them. I cannot speak for all employees, but can confirm that this is the general feeling of lower grade employees. Perhaps you can warn Clients that this is on the cards so that they do not suffer yet again from another restructure. When will Aldermore get it right??”

Aldermore are not one of my favourite factoring companies and murmurs often reach myself as well as other brokers of staff unhappiness and tough underwriting criteria and as readers of this blog will know they threatened to sue me for posting something rather humorous albeit completely true on the Factoring Blog

A very quiet revolution in factoring costs etc

A friend of mine sent me a link to an article written by a factoring company who were claiming to be about to revolutionise factoring by abolishing value dating on customer payments for interest charges and also by eliminating termination fees.

I was rather amused by their statement that the “average customer with an annual turnover of £6.7m, being charged 3% would pay an additional £3,865 per annum with a lender who withheld value for debtor receipts over a five day period”

The amusing part was their claim that the “average” company using invoice finance had a turnover of £6.7m as that sort of annual turnover is anything but average for an independent factoring company as ABFA’s own statistics show that 82% of all companies using factoring or invoice discounting fall into the turnover range of zero to £1m

By my calculations a saving of £3,865 on a turnover of £6.7m plus Vat equates to 0.048% of turnover which might make it easier to calculate savings over the total package.

Scaling the figures down to a more realistic “average” turnover of just 10% of the suggested average would cut the savings down to just £30 per month.

The second part of the press release claims that they are “also launching a new contract which removes termination fees.  The ground-breaking contract provides customers with certainty of funding for a 12 month term, whilst simultaneously allowing them to give only 28 days’ notice should they wish to leave early, without incurring any termination fees”

Personally I think that there is about as much spin in that paragraph as there was in Nigel Farage’s promise to resign if he failed to win a seat at the General Election.

I’m willing to bet that “certainty of funding for a 12 month term” means something completely different to a customer than it does to the factoring company as to my mind “certainty of funding” means exactly that and not that they will fund invoices subject to, subject to, subject to which is what the factoring company mean.

I find the so called abolition of early termination fees interesting unless it means that they are abolishing the Minimum Annual Fee as the majority of early termination charges relate to the balance of the minimum annual fee that hasn’t been charged yet and I’m willing to bet that they aren’t abolishing that.

The final part of the press release concerned a new contract that they were bringing in which in addition to the above also formalized their position on “collect out” fees by stating that it “includes a substantially reduced ‘collect-out’ fee, charged at 10% of the outstanding borrowing amount when applicable”

What that effectively means is that in addition to the factoring commission that supposedly covers the cost of sales administration including credit control if you are unfortunate enough to go bust they will levy an additional charge of 10% of the outstanding debts to do what you have already paid them to do.

The average client turning over £6.7m could have outstanding debts of £1m meaning that the factoring company will charge an additional £100,000 to collect in those debts which is 26 times what the company have saved you in their value dating costs.

The reason that I titled this blog post “quiet revolution” is because the factoring company involved is promoting these ground breaking changes very quietly using such vehicles as the Solar Sister blog.

Although it may appear to the contrary from what I have written the factor is actually one that I like and deal with but no-one from there has actually bothered to tell me about this quiet revolution so I’m guessing that none of their other introducers know about it either. It is my normal practice to name names but on this occasion I will respect their obvious wish for privacy and will keep it confidential.

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