Factoring companies

ABFA statistics part 3

by

As most industry insiders are aware a large number of independent factoring companies are funded by the big banks by means of back to back facilities. It occured to me that it’s possible that some of the 35 companies with annual turnovers in excess of £100m recorded in the quarterly statistics of the ABFA are actually the factoring companies that Lloyds TSB Commercial Finance and their ilk are funding.

If that is the case then all of the statistics are grossly inaccurate as many of the figures for the independents will have been included twice – once as the £100m+ funding from Lloyds TSB to the factoring company and again as the same funds are put out to the many clients of the factoring company.

I did ask some of the great and good of the factoring industry if they knew the answer but all said that whilst it was an interesting question they didn’t know.

Lies, damned lies, and ABFA statistics

by

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.

.

Factoring charges – the hidden costs

by

The factoring market has long been very competitive but when prospective factoring clients compare quotes from a number of different providers they often just look at the headline rates without bothering to delve any further into the small print.

We came across a company recently who banked with RBS and had naturally approached RBS Invoice Finance for a factoring quote. According to the prospect the quote for factoring the debts of this £300,000 pa turnover company was “a little on the high side” but it wasn’t until they emailed the quote over that I realised quite how high it was as it included a setup charge of £1,500 which is three or four times the size that most of the independents would charge but the real sting in the tail was the 1% renewal fee which I must admit was a new one on me.

Asking around it seems that RBS Invoice Finance wasn’t the only factoring company to charge renewal fees as HBOS also used to do it.

I was discussing a quote for an invoice discounting facility with a provider today and I asked him whether he had quoted a renewal fee and his reply was that his company didn’t charge them whereupon I suggested that he should have put renewal fee – none in his quote as we know that we are tendering against a couple of bank owned factoring companies who may well have renewal fees.

Whilst discussing renewal fees the factor told me that he had seen a quote from RBS Invoice Finance that included a termination fee. This wasn’t a fee in lieu of notice for an early termination but would have been payable on top of the balance of any minimum fees whenever the client decided that he no longer needed his facility.

It’s getting to be a bit of a minefield out there.

Interesting new slant on client relations

by

We had an enquiry from a company today that has been factoring with one of the better known factoring companies and had a successful relationship until they moved from one branch to another.

Things went very quickly downhill as the factor seemed to have a number of internal administration problems including a large staff turnover but with more staff leaving than being replaced. The client was told on more than one occasion that they couldn’t cope with the clients that they had on the reduced staffing levels and on one occasion when they asked why the money hadn’t been sent over was told that the invoices hadn’t been input into the system as the data entry girl was off sick.

When the client politely suggested that the service wasn’t as good as it had been in the previous branch she was told that if she didn’t like it “she could sling her hook”.

I think that this comment will probably win the Factoring Blog client relations award of the year and it’s only February.

Factoring company interest rates

by

Factoring companies have historically charged interest at a percentage over Base Rate ( say 2.5% to 3%) but have built in to the Agreement a minimum Base Rate of, say 4% so their current lending rate of 7% per annum is effectively 5.5% over Base

In the light of the recent reduction of Base Rate to levels previously unimagined many factoring companies have switched their interest charging structure to a percentage over Libor so that they can maintain their margin on lending but we were talking to one of the independent factoring companies that we deal with who informed us that they do not have any minimum built into their agreement and their current lending rate is between 4% and 4.5% per annum.

The irony of this is that their factoring interest rate is now considerably cheaper than that charged by the bank that funds them