Invoice discounting

Independent Bank Reviews

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The word on the grapevine is that the banks are becoming increasingly nervous about many of their invoice discounting facilities in these recessionary times and their nerves are showing in the amount of Independent Bank Reviews that are being performed where an outside firm of accountants / insolvency practitioners are asked to perform reviews of the company in order to calm the nerves of the invoice discounting financier.

These reviews do not come cheap and naturally it is the client who is forced to bear the cost. It wouldn’t be so bad if the discounter acted upon the review but we have recently come across a case where the bank factor appointed a well known form of insolvency practitioners to conduct a review to support an application for an increased funding line. The review was very positive and supportive of the client but the bank decided not to increase the funding line in any event but still charged the £15,000 cost of the review to the poor client.

Interesting article in FT slating the banks

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The managing director of Mandor Engineering was complaining in the Financial Times a couple of days ago that the banks were being unhelpful and wouldn’t lend to his company unless via invoice discounting which would cost more.

He then went on to give a bit of background to his company which makes doors for commercial and industrial premises, turns over £2m per annum and last year performed so badly with falling sales and bad debts that it was forced into Administration.

It isn’t often that I feel sorry for the banks but having been publicly slated for the poor lending that got them into a financial mess they are now being slated for not lending to companies that have demonstrated that they are also poor risks

Factoring Blog review of the first half of 2009 part two

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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.

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Factoring Blog review of the first half of 2009

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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….

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Invoice discounting problems in Australia

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It seems that ANZ are the second major bank in Australia to pull out of the invoice discounting market following BankWest last year. This is despite increasing demand for the product and seems to be partly as a result of insufficient expertise within the factoring and invoice discounting markets down under.

If I were younger with fewer family committments here I would give serious thought to carving out a career for myself in Australia as they seem to be crying out for experienced personnel there and I love the lifestyle.