Factoring Blog review of the first half of 2009 part two

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.


What is the point in using a factoring broker part deux

I was chatting to a friend yesterday about the increasing amount of enquiries that we receive where we are “competing” against another broker (which in many cases can act against the best interests of the prospect) and he told me of a case that he was aware of where the company had approached at least half a dozen brokers earlier this week and each one having ascertained which factoring companies he had already spoken to, put in someone else.

This cannot be in the best interests of the client as the brokers further down the food chain will be desperately punting around for a company that they haven’t already spoken to in order that they can earn from the deal, which could end up with the company tying up a facility with the least appropriate factoring company.

Interestingly enough it only took one guess at the identity of this prospect and Factoring Solutions was one of the brokers that he had approached. Having discussed his requirements we nominated one particular factoring company as probably the best for his needs to be told that he was already in contact with them.

We take our responsibilities as a broker seriously so declined to put forward an alternative. We won’t earn from this particular company but still hope that his rather unusual approach won’t backfire on him.

Increase in the number of factoring brokers expected in 2009

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