Invoice discounting

ABFA statistics part 2

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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

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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”

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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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.