Lloyds Bank Commercial Finance has just circulated a press release stating that any broker or introducer who introduces them to a factoring or invoice discounting client will receive a commission of 40% of their service fee for the life of the facility.
This is significantly higher than the industry norm and is potentially highly lucrative for factoring brokers many of whom will now start to introduce new clients to Lloyds Bank Commercial Finance for the their high rewards alone irrespective of whether that particular factoring company is the best fit for the company or not.
Regular readers of the Factoring Blog will be aware that my opinion of the average factoring broker is already pretty low having referred to their behaviour as vultures in my previous post but the likelihood is that many brokers will shed off their vulture like scavenging and take on new personas of the porcine kind as they queue up to feed at the trough that is Lloyds Bank Commercial Finance.
Unfortunately their behaviour will lower their standing even more as the main reason for the existence of specialised factoring brokers is to offer companies the benefit of their expertise and not to line their own pockets.
Discussing this press release with some of my factoring friends I was told by one that he had approached a new broker only to be told “Why should I deal with you when Lloyds Bank Commercial Finance will pay me so much more. That should really serve as a warning to any company who uses a factoring broker and finds himself introduced to Lloyds as it is highly likely that the introduction has been made in the broker’s best interests and not your own, which is a shocking state of affairs.
Another factoring friend asked who was ultimately going to be paying for this huge commission and they suggested that it was either going to be the client in the form of higher service fees or else the service levels would be pared back even more with an effective reduction in the factor’s sales ledger administration and credit control creating savings to fund the commissions.
A third factoring friend told me that a few of their introducers had already been in contact asking whether they would match Lloyds only to be told that they would gladly do so as long as the introducer didn’t mind them increasing the rates to the client to cover the increase as they didn’t intend to reduce their service levels to compensate.
Factoring Solutions prides itself on offering an ethical broking service only ever introducing clients to what we consider to be the most appropriate factoring company for their needs. We have never dealt with Lloyds partly because there are independent factoring companies that offer higher service levels at comparative costs and we won’t be starting to introduce business to them now despite the high rewards on offer from them.
If any company wishes to speak to an independent factoring broker who places his clients’ needs above his own please feel free to contact Factoring Solutions on 01827 707680
I had lunch last week with a director of a factoring company and he laughingly thanked me for not trying to sell him the client list of First Capital Factors which was a small independent factoring company that had recently gone into administration.
It seems that once the Administration became public knowledge several vultures factoring brokers obtained a list of their clients from Companies House and tried their hardest to hawk the list around to a few factoring companies as well as trying to get their clients on board so that they could place them elsewhere, earning nice fees in the process.
As if that wasn’t bad enough someone calling herself Clair Tweedy started contacting the clients claiming that she worked for NACFB which she stated was part of the Government and she told them that funding of First Capital Factors clients would cease within 90 days but that she could help them relocate to a new factoring company.
Yuk – despicable behaviour but having been broking for 17 years I shouldn’t be surprised by anything any more from the huge commissions that some of the larger factoring brokers demand for introducing clients, to the churning of clients at the end of the year to get another introductory fee but contacting factoring company clients and blatantly misrepresenting who you are is a new low even for this industry.
My understanding of the situation is that Leumi ABL have taken over the debtor book of First Capital and have continued funding but those companies that don’t really fit into their client profile will be asked to find alternative factoring arrangements but will be given time to do so and will not just be thrown out on their metaphorical ears.
Anyone that wishes help in finding another factoring company but doesn’t want to deal with one of the vultures currently pecking at the carcass please don’t hesitate to contact me if you want to deal with an ethical broker who refuses to join in with this unseemly feeding frenzy
Regular Factoring Blog readers will be aware that I have a bee in my bonnet about companies within our industry that promote themselves by knocking their competitors and I have already outed Market Invoice and Simplicity for these practices and now it appears that Nucleus Commercial Finance has joined this select band.
Not only have Nucleus just come out with a promotion designed to frighten people away from their competitors but I received details of their E Book in an exceedingly patronising email from someone that I had never heard of:-
When securing invoice finance for your clients, you need to make sure they understand the additional fees the finance might come with, and the total overall cost. Question is, are you aware of the potential hidden fees?
The E Book talks about the hidden fees in commercial loans but those allegedly hidden fees include take-one fees so they are obviously talking about invoice finance. Whilst I don’t deal with every factoring company and are therefore not privy to their operations, the ones that I do deal with and that includes the independent market leader are quite open about their additional fees with at least one giving all prospective new clients a schedule of possible additional charges along with the agreement before the facility has gone live.
Examples of the OTT quotes include:-
The Arrangement Fee –
A very common one-off admin fee to cover the costs associated with arranging the loan. Many companies are caught off-guard by the arrangement fee as it is often not presented upfront in the quote.
The amount varies and can be substantial: anywhere from 1% to 10% of the total quote. Payment is required at the start of the contract.
I have never come across any company that has been quoted 10% as an arrangement fee as to be honest the amount is just ridiculous. Most factoring companies charge a fairly nominal amount, typically £500 or so to cover the cost of documentation.
The take-on fee
A one-off service charge for recovering payment owed to your company from outstanding customer invoices. When work has been invoiced but payment has not been received, financial assistance in the form of invoice finance can be considered – at a price.
This take-on fee covers the loan provider’s costs associated with providing you with the amount owed to you, allowing your business to run as usual, and assuming responsibility for the unpaid invoice.
How much does it cost?
Typically 2% of the total value of invoices. The larger the invoices, existing or new, the larger the fee.
With the exception of much larger invoice facilities it is fairly common knowledge that most factoring or invoice discounting clients will pay two charges. A service fee based on the invoices factored and interest on the funds advanced. These fees will be the first thing that most potential clients will ask about and will generally be confirmed by the factoring company in a written quote prior to being included in the Agreement so to say that they are hidden is rather laughable.
Charge per invoice schedule (or charge to fund same day invoices)
What is it?
This fee is generally considered the most unwarranted of the lot. Simply put, it is the cost your company will pay to a financial institution when funds are paid on the same day the invoice is processed. This service is more often than not presented as part of the deal, without making mention of any penalty fees.
How much does it cost?
At a cost of 1% of the total invoice amount per transaction, this lack of disclosure is, in our view, dishonest business practice.
Nucleus may claim this to be the “most unwarranted of the lot” but again they aren’t presenting a true picture. Most factoring companies operate on the basis that funds will be available 24 hours after the invoices have been received in order to give them time to carry out their normal checks and due diligence etc but they will occasionally allow their client to draw funds early but this will incur a fee. Speaking as an ex operations type I am well aware that clients that want their payments prematurely cause a great deal of disruption to the daily work flow and the practice is therefore deliberately discouraged.
The final page of the E Book contained an alleged case study supposedly showing how one of their clients had been the victim of alleged hidden fees but unfortunately the Case Study doesn’t have the ring of truth about it.
One of our clients is a printing firm who, before they started working with us, had been granted a funding line of £200,000 with a discount fee of 1.5% above the base rate (0.5%).
• The money was to help them grow after winning a large new client.
• They thought their fees would total £75,000 over three years.
Their loan facility contained several hidden fees:
Arrangement fee – 5%
Survey/audit fee – £500 every 3 months
Trust account charge – 0.2% of paid invoices
Take/on fee – 2% of invoice value
They paid £10,000 as an arrangement fee and £4,000 as a take-on fee for invoices they brought on board
Every quarter they paid £500, adding up to £6,000 over the three years
They paid £2,550 for using the trust account their invoices were collected through
The true cost of the loan was £97,550 – a massive 30% increase on what they thought they would be paying!
As I have already mentioned the case study doesn’t have the ring of truth about it as firstly they were allegedly looking at the cost over three years which is highly unusual but makes for a larger figure in the case study and secondly all of the costs and fees that they are complaining about will have been outlined in the original Offer Letter as well as the Agreement that the directors signed.
I do wish that companies such as Nucleus, Simplicity and MarketInvoice would promote their themselves by outlining what they have to offer and not by publishing half truths about what their competitors are allegedly doing and if I may finish by offering some advice to Nucleus on the wording of their emails I would suggest as someone who has been in the invoice finance industry since before the sender of the email was born that you look at the wording of future communications more carefully as I doubt whether I am the only grey haired broker who doesn’t like being patronised.
EDIT – A couple of interesting facts came to light after I published this blog post thanks to my ever helpful readers and they can be found in the comments section
Simplicity is one of those recruitment finance companies that often try and have a dig at traditional factoring companies as a means of self promotion and I have noticed in the past few weeks that they have published a couple of articles that try to promote themselves by pointing out negatives in their competitors’ offerings that are unfortunately often just not true at all.
There are several factoring companies that offer dedicated recruitment finance facilities and as a large proportion of the enquiries received by Factoring Solutions are for recruitment we have relationships with many of the providers and deal actively and frequently with three of them.
Firstly Simplicity claim that:-
Many factoring providers will attempt to seduce you with headline rates, but this is likely to be a false economy for several reasons.
Firstly, you will pay interest on the amount advanced to you and there will be an additional amount to cover the finance provider’s administration costs (i.e. service fee).
In traditional factoring there will normally be two charges as Simplicity have stated but the factoring companies that offer recruitment finance facilities will have just the one charge and frequently that single charge will be lower than that available from Simplicity.
Secondly, the longer it takes your client to pay the more expensive your factoring facility becomes, with interest continually accrued over time
Again this is incorrect as with recruitment finance facilities (which is what the title of their article was about) there is a single charge levied on sales and slow payers will not result in higher costs.
Thirdly, perhaps most important of all, factoring by default imposes a concentration limit – the maximum amount the provider will cover for a single client. If you work for a large client, that accounts for as much as 20% of your total monthly billings and the concentration limits in place restrict you from gaining access to those funds, your business is going to run into some major problems – will you have enough set aside to pay out what you need to? can your business even continue to trade without these much-needed funds?
That may have been true a few decades ago but not nowadays and Factoring Solutions has been placing clients with factoring companies offering recruitment finance facilities to companies that only have a single customer so the concentration will be 100% which makes the above comment slightly ridiculous as well as patently untrue.
Suppose your factoring provider offers you a limit of £75k or even £150k – at the outset that may seem attractive. However, what happens once you hit that cap?
Quite simply you won’t get any money paid to you that week, which means you cannot pay your workers or other essential expenses either. All of which could see the recruitment business you have worked so hard to build and grow fall by the wayside within a matter of days. Can you really afford to take that risk?
The above comment is a bit naughty as that just doesn’t happen. Every finance provider will set a limit but most recruitment finance providers will be happy to increase that limit to accommodate growth within your company as their aim is to assist your growth and not hinder it.
It’s a shame that Simplicity feel that their marketing effort should be aimed at knocking their competitors as not only are the majority of the negatives that they have talked about just not true but they have left out perhaps the most important aspect in the whole arena of deciding which recruitment finance provider one should go with and that is the service levels on offer and judging by the comments made by their disgruntled clients when they contact Factoring Solutions it isn’t hard to see why.
By all means get a quote from Simplicity then feel free to contact us and we will introduce you to a traditional factoring company that has a specific recruitment finance offering that will be cheaper than Simplicity, won’t have a separate interest charge and won’t hamstring growth with ridiculous concentration limits.
Contact Factoring Solutions on 01827 707680 for friendly and professional advice free of charge
As most regular readers will know I consider the various annual factoring awards to be little more than a joke for a variety of reasons but one Factoring Blog reader very kindly sent me a link to what is probably the biggest farce to date as it seems that a factoring broker called Fund Invoice has been shortlisted for Small Business of the Year in the 1066 Business Awards of 2016
Eligibility for this prestigious award is in their own words:-
This award is open to all businesses with less than 10 employees that can demonstrate exceptional performance, growth and market leadership.
Whilst FundInvoice LLP may well qualify as being within the two year cut off it most certainly doesn’t fall within the spirit of the rules as the company was formed in September 2013 just two weeks prior to it’s previous incarnation Cashflow Acceleration Ltd being plunged into Administration owing a phenomenal amount of money to HMRC and with an equally large overdrawn directors loan account resulting in one of it’s husband and wife director team not only being made bankrupt but also being barred from holding a directorship for four years which is pretty serious stuff.
The liquidator’s report stated that they appointed accountants to try and reconstruct the company’s accounts from 2008 onwards to try and confirm the accuracy of the overdrawn directors loan which was in excess of £400,000 but in their own words “despite numerous attempts to collate the necessary information to reconstruct the accounts over an extended period of time this task has proved unsuccessful.
I have no idea who it was that nominated FundInvoice LLP for the Small Business of the Year award and I’m not cynical enough to think that it had anything to do with the fact that they were sponsoring one of the other awards but whilst I feel that many of the other factoring award winners have been unjustified and more to do with lobbying than merit in this case I feel that it is entirely wrong that the phoenix of a company that screwed over us taxpayers so royally should be eligible to tell others that they are the Small Business of the Year – that is if they actually win