Factoring

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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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” 😀

Yet another dining story

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Less than two months after the “Christmas Curry” episode I had a call from the Sales Director of one of the independent factoring companies who wanted to meet up for a chat. He suggested picking me up at The Belfry Hotel where I have a pre-arranged earlier meeting and taking me to lunch at a pub a couple of miles away.

A couple of hours after this was arranged I had a call from one of his colleagues to update me on some deals that he was handling for me and he happened to mention that he was on a train London bound. Wondering what he was doing on a train to London at a time in the late afternoon when he should be taking the train out of London back home I was told that he and the ops director were meeting someone from a well known insolvency practice and were taking him out to dinner that night at Gordon Ramsey’s restaurant.

I’m beginning to spot a pattern here 🙁

 

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Interesting new slant on client relations

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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.