Factoring

Increase in the number of factoring brokers expected in 2009

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With factoring companies like Bank of Scotland having pulled up the shutters to new business and laid off their sales staff and others like GE Commercial Finance and GMAC just marking time the employment market is being inundated with factoring salesmen looking for jobs. Those few employment agencies that specialise in recruiting for factoring companies have more CVs on their files than ever before but unfortunately there aren’t any vacancies to fill.

The salesmen with proven track records will probably end up with one of the few vacancies that will be occuring in the near future whilst the rest will either leave the industry or try their hand at broking. I fully expect to see an upsurge in inexperienced factoring brokers this year and would suggest that anyone looking at factoring or invoice discounting should enquire a little more deeply than normal into the credentials of their chosen broker and perhaps even make sure that they are members of the Independent Factoring Brokers Association

 

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GMAC stave off bankruptcy

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It was announced in the final week of 2008 that GMAC had won US approval to have banking status in a move that should help the company stave off bankruptcy. This is of interest to us as they are the parent company of GMAC Commercial Finance, a company that was once the market leader for factoring and invoice discounting in the UK but which seems to have lost it’s way since Lloyds TSB sold it in the late nineties.

GMAC Commercial Finance appear to have put up the shutters for new business some time ago but if the parent company have any cash left from the interest free loans they are providing to Americans to persuade them to buy GM cars, perhaps they might once again become active in the UK factoring and invoices discounting markets

Factoring facility limits being squeezed by independents now

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Most of the recent bad publicity about factoring and invoice discounting companies having their facility limits reduced concern the high street bank owned factoring companies as they revert to their banker’s mentality when the going gets tough but it isn’t just them that are restricting their clients’ funding as we had an enquiry from a client of an independent factoring company who was getting into financial problems because his factoring company wouldn’t increase his facility limit to allow him to grow.

The company is involved in the recruitment industry, has been trading for a year and is struggling to turn over £1m a year as their factoring company are restricting their facility limit to £100,000 and refusing to increase it. The company have been awarded further contracts to supply more staff in January but are on the verge of turning away the business as they can’t afford to fund it as the factoring company who claim in their marketing material that one of the advantages of factoring with them is “Flexible finance that grows as your business grows” are not living up to their pledge.

I won’t name the factoring company quite yet just in case there is more to the story than meets the eye (there often is) but we have arranged for one of the independents with a more commercial outlook to visit on Monday so I will report back on the outcome at a later date.

Cut in base rate probably of no help to factoring clients

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Today’s 1% cut in base rate to 2% will probably have negligible effect on SME factoring and invoice discounting clients as firstly many of the providers have already moved over to LIBOR as a charging rate and secondly many of those who have remained on base rate will have minimum base rates included in their agreements and these could well be 4% or 5% so any factoring client on 3% over base could still be paying 8% pa

Time to dust off those factoring agreements and check the wording

RBS Invoice Finance factoring charges yet again

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I have now had a look at a factoring quote provided by RBS Invoice Finance to a prospective client and quite honestly I find their proposed charges outrageous.

The company have a turnover of £300,000 with five customers all equally spread and they have no history of payment problems. RBS have quoted for a recourse facility so there is no credit insurance involved and what’s more they want the client to do their own credit control. The minimum factoring commission of £6,000 pa is at least one third more than available in the independent sector and as if the outrageous setup fee of £1,500 wasn’t bad enough there is also a renewal fee payable on the anniversary of the facility of 1%

I have been in the factoring industry a long time and this is the first time that I have heard of a renewal fee but the real problem is that probably 95% of RBS Invoice Finance clients come directly from the bank and it never occurs to them that there might be alternatives that would offer a better deal so they just sign on the dotted line.

If this case is representative of RBS rates I would suggest that anyone considering a factoring facility with them should look around for an alternative quotation as they are very, very uncompetitive.

In this particular instance we will be saving the company about two thirds of the setup fee plus another third of the ongoing fees plus all of the renewal fee as none of the factoring companies that we deal with charge so outrageously.

Ian

Factoring Solutions