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.