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.
For anyone interested I wrote another short piece about factoring companies and insolvency practitioners on the Factoring Solutions blog
The Daily Telegraph has now taken an interest in the unhealthy relationship between factoring companies and the insolvency industry and has published an article here http://www.telegraph.co.uk/finance/yourbusiness/9482017/Invoice-finance-firms-profit-from-company-failures.html
Whilst this is definitely an area that needs a close look at there is another side to the coin as not all factoring companies are as cavalier as the worst and others have actually pushed the boat out that little bit extra during difficult times saving companies and jobs in the process
I did smile at Kate Sharp’s comment:-
“Unfortunately, despite the best efforts of all involved, sometimes businesses fail. Where that happens our members would seek, within the bounds of the contract signed by the client, to protect their commercial interests as best they can in that unfortunate situation.”
As anyone who has read a factoring contract will confirm the 24 pages can be condensed down into “we can charge what we like, when we like” and whilst no-one will object to any factoring company protecting it’s commercial interests it’s the wholesale raping of the unadvanced balances that most of us object to.
There are many cases of companies who go bust with a decent debtor book but who find that once the factoring company has applied it’s termination fees there isn’t enough in the debtor book to cover them so the personal guarantee is called in. I think that this is unethical and totally reprehensible and I refuse to deal with any factoring company that behaves in this manner.
Luckily there are some factors who still believe in old fashioned values
Business Money has got in on the action by publishing a story that shows that the author really doesn’t have a clue what goes on under his nose as he tries to put forward a nostalgic view of life in the world of factoring as it was a decade or so ago.
I suppose that expecting Business Money to bite the hand that feeds them is rather like the equally hard hitting Hello magazine printing an expose on the Beckhams 🙂