Factoring

Factoring Blog review of the first half of 2009 part two

by

Factoring charges in the past have been driven down and down as one or two of the major bank owned factors have tried to buy market share at any cost. The activities of an internet lead generator with an automated online pricing model hasn’t helped as any such thing must be price driven thus driving prices down even further and the factors have tried to redress this by looking at other ways of increasing revenue rather than affect their headline rates. To this end we have seen the introduction of facility commissions which is a percentage of the agreed facility and is addition to the factoring commission. At least one of the big bank owned factors is now incorporating renewal commissions too if the poor client wishes to renew his facility at the end of the year whilst the worst one of the lot has been sneaked in by one of the big boys who has stuck in a termination fee which becomes payable if the client wishes to terminate his facility whatever the reason whatever the time.

Wageroller and Smart Flow Finance have bitten the dust although there are rumours that Wageroller has resurfaced under a new name but the only factoring company to have succumbed in the first quarter of the year has been Challenge Finance.

I started off the year by announcing that GMAC had pulled down the shutters for new business but I had a meeting with one of their regional directors yesterday who told me that they were now in full steam ahead mode and with quite an innovative range of ABL products too.

Even in a fast changing world like the one we currently live in there are some things that never change. At the end of last year I announced that the parent company of Cattles Invoice Finance were about to sell the company and that would happen “any day now”. Six months down the line the supposed sale of this factoring company is still just round the corner as the parent gets further and further into the mire with it’s negotiatons with bankers unresolved, it’s accounts delayed as the auditors won’t sign them off and the shares suspended. Still I’m sure that a Cattles insider will be contacting me shortly to let me know that the sale will be happening “any day now” as has been happening at monthly intervals throughout 2009 so far. 🙂

The other enigma is Close Invoice Finance which at one time was a market leader in terms of client satisfaction but where the stories of ill treatment from unhappy clients just seem to keep on coming. This year to add to the confusion Close have closed the operating centres in Birmingham making a number of redundancies in the process in order to cut costs whilst at the same time employing an industry heavyweight on what must be a huge financial package to run the Northern operation, as well as buying a small factoring operation in Northern Ireland.

My predictions for the second half of 2009 are to expect much of the same. The market will still be tough to operate with the well run independents riding out the storm without too much damage to either their reputation or bottom line but I think that the recession coupled with the tough attitude taken by the credit insurance market will start to see big problems in the top end of the invoice discounting sector with companies turning over in excess of £50m failing and possibly resulting in significant bad debt losses for the banks operating those facilities.

Time will tell.

.

Factoring Blog review of the first half of 2009

by

When reviewing the first half of 2009 I started by looking back at comments I made at the beginning of the year in connection with my expectations for the factoring market as well as general comments.

My comment that “I guess that with the banks’ reluctance to lend money and the general state of the economy it is only to be expected that enquiries for factoring and invoice discounting would be running at high levels in 2009” proved to be miles out and whilst Factoring Solutions did receive a record number of enquiries in January, that didn’t last long and the enquiry levels drifted downwards to it’s current very poor level.

It would seem that rather than using the banks’ reluctance to lend as a reason for turning to factoring and invoice discounting the SME sector has decided that in these uncertain times they don’t want to commit themselves to a factoring agreement with it’s associated costs if the opportunities for expansion won’t be there.

Talking to other brokers it would seem that most are fairly quiet with the exception of those owned and operated by insolvency practitioners who are busy with pre packs of existing factoring clients that have failed or other companies that need factoring to provide working capital for the restart.

The only other sector of the broking community that has done well in the first six months of the year are those that have built up strong relationships with the bank owned factors by dint of introducing companies to their own bank in return for a fat fee. Now that the banks have decided to move the goalposts they have found themselves with a large number of clients that no longer fit their new criteria and those clients who find themselves surplus to requirements have been handed over to the banks’ pet brokers to find them new homes.

Highly lucrative work if you are of that mindset but here at Factoring Solutions we run an ethical broking service where the needs of the customer are paramount.

If the ABFA stats are to be believed (and I have my doubts on that score) the figures for the next quarter will be interesting as the number of clients will have gone down again as more and more fall by the wayside.

It would seem that those factoring companies that were a little choosier in the past are the ones that are suffering least at the moment as whilst their books are still contracting the rate is much slower than average. It is the factoring companies that used to operate on the basis of “If it moves sign it up and if it doesn’t move still sign it up” that are suffering more at the moment with much larger numbers of client failures with their consequential impact on staff time as well as bad debts.

Most factoring companies are now looking much closer at new business propositions with such things as single debtor deals much more difficult to place and those with concentration problems also being studied more carefully too.

continued….

.

Venture Finance Direct has been shut down

by

It seems that the Venture Finance experiment to automate the whole factoring process and offer a stripped down facility online to the smaller enterprises has not been successful and is being closed down.

It was an interesting concept starting off with an online application form but it would appear that the applicants / clients were of poor quality and the whole concept was causing too many problems and losses so had to end.

Where are the companies who have been turned down by everyone else going to go now 🙂

ABFA statistics part 2

by

Having a closer look at the ABFA statistics for the factoring and invoice discounting industry for the first quarter of 2009 I was struck by one seemingly insignificant statistic that the number of clients with annual sales in excess of £100m had dropped from 248 to 213

I wonder what happened to these 35 companies? Some may have shrunk to a stage where their turnover was less than £100m so came into a lower category but that is fairly unlikely. Some more may have ceased using their invoice discounting facilities replacing them with something else but again I think it unlikely which leaves the worrying fact that 35 companies turning over in excess of £100m each have gone bust in the first quarter of this year.

Assuming that each of those companies were turning over the bare minimum of £100m and their debts turned in the ABFA average of 59 days the total outstanding debts of these companies would be in the region of £650m and assuming an average investment of 70% there would be factors funds invested of £455m

Most of us who have been involved in the “collect out” of bust clients will know that there is often a shortfall in collections as the disputes start to crawl out of the woodwork and the clients customers go bust and there is a good likelihood that losses may be incurred in that situation.

I guess that due to the size of the facilities these will all be bank factors involved and I wonder what sort of losses will be involved when collecting out an investment of at least £455m from 35 bust clients. My guess is that some of the bank factoring companies will be sitting on potentially enormous losses at the moment

ABFA statistics

by

The ABFA have recently published the factoring and invoice discounting statistics covering the first quarter of 2009. Whilst this shows a small decline in almost every area from numbers of clients to advances made it should come as no surprise in the present economic climate.

The number of clients at the end of March 2009 was down to 46,999 from 48,536 at the end of the previous quarter and whilst 2,260 new companies were welcomed to the world of factoring and invoice discounting 3,027 disappeared in the same period.  Assuming that the majority of the 3,027 went bust in one way or another it’s not surprising that insolvency practitioners are the factoring companies new best friends.

I wonder if Eric Cantona was thinking of the relationship between insolvency practitioners and factoring companies when he came out with his now legendary quote ” When seagulls follow the trawler it is because they think sardines will be thrown into the sea”