The Telegraph has published another article callling for an investigation into the relationship between some factoring companies and the insolvency industry coupled with high terminantion fees charged by both parties. The article is here and claims that Government ministers are now beginning to show an interest in this subject.
In my view an investigation can’t come soon enough although I would add that not every factoring company gets up to these tricks but it is one of the reasons why Factoring Solutions is highly selective with it’s panel of factoring companies and why we only deal with relatively few
Interesting to note that Business Money website make no mention of the Termination Fees. Could that be because Touch Financial is a major sponsor of the site.
Termination Fee’s from Factors is becoming a major talking point in the Industry and unfortunately detracts from many decent Factors who do a good job for many clients,unfortunately it has become more and more common practice for lenders to gorge themselves on increased fee’s. I have seen it in years gone by where it was just the unexpired term of the notice period that was charged say 3 months of the minimums. Now Lenders are charging projected disbursement charges on top for any unexpired term I actually saw the well known state owned Bank actually quote a termination fee of initially £120,000 they then changed that to £97,000 after a bit of poking they explained that they had a “right to charge for interest that they would have earned” if it had run its course also all the expected disbursements that they would miss out on and finally the actual unexpired term of the agreement minimum income that had been written into the contract.
This and I have said this to a number of CEO of the Lenders is going to become the PPI scandal of the factoring industry. In fact the first thing all factors need to do is follow Lloyd’s Bank example and allow everyone to give 1 months notice then they will all be on the same level playing field and as long as the Factors gets his money back in full everyone will be a lot happier, although the trend seems to be for everyone to try and get 18 month or 24 month contracts with 6 month notice periods this must stop now I even saw one not so long ago that a well known apparently worlds largest Invoice Discounter tried to take one of my clients from Close and tried to get him to sign a 3 year contract absolutely ridiculous, needless to say once I found out about this I explained the dangers to the client especially if he tried to leave after say 12 months this quickly put a stop to it.
So lets all lobby the factors to change contracts to 1 months notice and also limit the amount of money an insolvency Practitioner can charge on a Pre-Pack or insolvency to a percentage of the collect out. I have seen one again not that long ago who apparently had £800,000 of charges on a Pre-Pack absolutely astounding.
We who have been in this Industry for any length of time have seen it evolve over the years not always in the interests of the wider market but if you care for this profession it needs a few more Lenders to come to the fore certainly with the likes of 1 months notice and transparency on disbursements and any other charges as well as the other new type of arrangement fee’s creeping in some like RBS are asking for a 0.5% of the line size and renewed every year, Transparency stop the bull now.
Sadly I have had a bad experience with Lloyds who not only charged a massive termination fee but also made a hash of running a factoring account. The sooner regulation comers the better it will be for all concerned. I think fees will increase but the clients will know where they are. I wish I could print more as I have numerous examples of factors and IPs behaving badly and wrecking lives.
James Hurley at The Telegraph would be interested in hearing your stories so why not contact him directly on james.hurley@telegraph.co.uk