Ian

Lies, damned lies, and ABFA statistics

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The Asset Based Finance Association (ABFA) released their statistics earlier this month which summarised the factoring and invoice discounting activity of their members for 2008

 

The headline figures were that the number of active clients at the year end were down marginally to 48,152 whilst the advances outstanding at the year end rose by nearly 8% to £17billion and I guess that the initial reaction is that the figures are typical of what one might expect in the current economic climate with increasing pressure on companies cash flow resulting in higher funding levels overall.

 

The two interesting statistics that caught my eye were firstly that of the 48,152 clients using factoring and invoice discounting at the end of the year 248 of them had annual turnovers in excess of £100m

 

Advances to clients at the year end were £17 billion but a quarter of that sum was advanced to the 0.52% of clients with sales in excess of £100m and those figures skew the averages so much as to make them meaningless.

 

The other statistic that intrigued me was that the largest client sector in terms of annual sales was the zero to £500,000 sector with 18,500 clients which represented 39% of the total. The number of clients was virtually static compared to the end of 2007 but the advances outstanding to them at the year end was up from £542m to £908m which was a huge 40% rise

 

One would think that in the ordinary course of events that should be impossible. If we asssume that the average client has an advance rate of 80% and always has done – how could the overall average jump by 40%.

 

One possibility is that the figures include a large number of terminated accounts whose balances have been inflated by “extra fees” but the difference between 2008 and the previous year is £360m which is a hell of a lot of fees so I sincerely hope that is not the case.

 

If anyone has any other theories please feel free to post them here.

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What is the point in using a factoring broker ?

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I naively thought that the idea of using a factoring broker was so that companies could capitalise on the expertise of the broker in order to ensure that they got the best deal possible.

Earlier in the week I had a call from a company that had an unhappy relationship with his factoring company and wished to be extricated as soon as possible and placed with a factor that actually lived up to their promises.

Not a problem for us as “We know which factors perform” is our catchphrase so as requested we told the prospect that we would arrange for two of the better factoring companies to contact him so that he could decide for himself which suited him best and we told him who we intended to bring to the party so that he could expect calls from them.

The following day factor 1 reported back to me saying that one of his colleagues had already received the enquiry from another (unnamed) broker and had just been approached by yet another (this time named) broker with the same deal which he rejected saying that he was already dealing with the enquiry.

The second factoring company reported today that they were well down the road with the prospect but had today received the enquiry from yet another broker and when I asked him whether or not it happened to be Mr Named Broker he confirmed that it was.

The prospect obviously thinks that the way to get the best deal for himself is to approach several brokers whereas in reality the opposite is true. We listened to what the prospect had to say and told him to expect calls from the two factoring companies that we thought most suitable whilst the third broker that they approached was punting the enquiry round the market trying to find someone that didn’t have the enquiry already in order that they could earn something from the deal. Not sure about the first / second broker though.

I’m not quite sure what the moral of the story is so I’ll think of one later

Bibby Factors wins interesting award

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According to an email just received from the Chief Executive of Bibby Factors one of their “rising sales stars” has just won a prestigious ABFA Students award for “measuring performance on the night”

The things that these students get up to 😀

Interesting article on factoring fraud

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The Birmingham Post have published an article today under the heading  “Factoring fraud is tempting but always detected.” The article goes on to say that most factoring companies take a personal guarantee from the directors so they could become personally liable for any fraudulent invoices raised by their staff without their knowledge.

I suppose that on very rare occasions this does happen and I do know of one recruitment company where the manager has been raising fresh air invoices to cover up the fact that he hasn’t managed to do any genuine business and the company owner ( and guarantor ) was unaware of this and now has to worry about repaying the factoring company’s investment but I’m sure that most industry insiders will agree that 99% of all factoring fraud is perpetrated by the directors themselves.

All factoring companies will have suffered from client fraud at some time or another with rumours of some pretty major frauds circulating throughout the industry including Cattles and their recent £600,000 loss in Scotland or Close and their nine figure loss in their Manchester office but I think that the newspaper’s headline that “factoring fraud is always detected” isn’t necessarey true.

There are some fraudsters who set out on day one to line their pockets at the factors expense but the majority fall into it almost accidentally as they find that the company has a temporary cash flow problem so they issue a couple of fresh air invoices in the belief that cash expected in next week will allow them to cover up the fiddle. Tomorrow never comes and the cash flow problems increase so they compound the problem by issuing more and more dummy invoices but always with the thought in their minds that the problem will right itself next week.

We only know about the instances where tomorrow never comes and the fraud is found out but I wonder how many times people do get away with it.

 

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How to impress part 1

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I received an email this afternoon from a factoring company that has been trying to get on Factoring Solutions approved list for a while. It began “Hi David” 😀