Factoring

Invoice discounting enquiries at record high levels

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We have had more enquiries for factoring and invoice discounting in the first week of February than we did in all of February 2008 and whilst that should be good news for a broker I find it a little disconcerting that having read through the website which deals with the fact that not all factoring and discounting companies are created equal and some offer a truly appalling service with operating quirks that could cripple some companies cash flow plus a raft of hidden charges that could increase the headline costs considerably – people still telephone and ask “what’s the cheapest rate for an invoice discounting facility”.

There are always people around who are just after the cheapest deal but it seems to be on the increase. On Thursday we took three such enquiries in quick succession. The first was a well established recruitment company turning over £1.7m with a very healthy balance sheet who had received a quote from RBS Invoice Finance including a minimum annual charge of £12,000 and who were so pleased that we found a funder willing to do it for half of that that when arranging a meeting for next week they asked whether they would take the agreemenst with them as they were so keen to proceed. I think that has far more to do with RBS quoting ridiculously high rates in order to pretend to the world that they were actively looking for new business whereas in reality they were ensuring that no-one would take up their offers.

The other two were a recruitment company turning over £1m who was obviously contacting every factoring company in the telephone book and will probably end up with whoever quotes the cheapest headline rates and a distributor also turning over £1m who’s quote from Lloyds TSB I managed to better but who wanted to leave it until next week when he was having a meeting with his accountant which is probably a euphemism for scouring the market place.

Luckily Thursday wasn’t all about rates as we also had an enquiry from a loss making company turning over £6m who were about to sign an invoice discounting agreement with one of the independents but didn’t want to sign a personal guarantee as they thought that having been established for 30 years with 800 customers and being limited to only a 50% advance that a PG was a bit too belt and braces.

Luckily at least one factoring company on our panel agreed with them and came up with an in principle offer with a higher funding level and no guarantees.

Just to round off a busy day the scaffolding hire company turning over £500,000 with applications for payment was fairly easy to place.

It’s just a shame that more people don’t take more notice of the operating differences between different invoice financiers as they could be so keen to get the lowest rate that they end up paying a higher cost – after all £700 for an audit visit mounts up if they visit several times a year

RBS announce £3bn extra funding for SMEs

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It was announced today that RBS would be making available an extra £3b in the SME sector and the press release even mentioned that this would partly be used in their invoice funding division.

Judging by recent activity it would seem that rather than tell the world that their factoring and invoice discounting divisions are not interested in new business they are continuing to quote but at such uncompetitive rates that no-one in their right minds would take up their offer.

Just this morning we had an enquiry from a well established firm of recruitment consultants turning over £1.7m and with a healthy balance sheet who were looking at invoice finance not because they desperately needed the money but to be prepared for the inevitable hiccups in their cash flow. Their outstanding debts were £300,000 and they were looking to raise a maximum of £100,000 as a stand by facility.

We approached one of the independent factoring companies known for both the excellence of their service as well as competitive pricing and they quoted a rate of 0.45% with a minimum of £6,000 for a confidential invoice discounting facility whilst the company approached RBS Invoice Finance directly as they banked with RBS who quoted them exactly double.

HSBC increase their factoring charges due to Basel 11 ?

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I heard last week that the factoring division of HSBC had increased the interest charge to one of their recruitment company clients from 1.5% over Base to 3.5% over Base and had also increased the factoring service charge. They stated that the reason for this was down to Basel 11

In the same week I read an article in The Times that said “History, of a sort, was made this week when HSBC declared that, from next month, it will be offering its “lowest mortgage rate ever” – a super-cheap 2.99 per cent deal”

Something doesn’t quite add up here

GE Commercial Finance laying off their sales team

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It has come to our ears that GE Commercial Finance have just made 40% of their sales team redundant with the focus of the lay offs being with the salesmen inherited from Five Arrows after the take-over last year.

The lending targets have also been halved which is interesting as we didn’t think that GE were approving any new deals at all.

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Government to get involved in invoice discounting ?

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According to an article in the Financial Times yesterday the Government is supposedly looking at the possibilities of getting involved in invoice discounting in the hope of boosting the supply of credit and working capital to the hard hit SME sector.

 

It would seem that the favoured method would be for the Government to extend it’s guarantee facility to cover invoice discounting facilities from the major banks and apparently the Asset Based Finance Association (ABFA) have been involved in these discussions.

 

Banks have been shoving many of their customers down the factoring and invoice discounting route for several years as not only are the rewards higher but the security is better as invoice discounting is fully secured by the invoices that are being funded and a properly managed invoice discounting company shouldn’t need a Government guarantee to enable them to offer funding facilities.

 

If this turns out to be true it will be an unusual step by the ABFA to lobby for guarantees that will only be of use to some of their members but which will give them a huge advantage over the others.

 

Watch this space