Factoring and termination fees. ABFA response

According to an article in today’s Sunday Telegraph Kate Sharp the chief executive of the Asset Based Finance Association (ABFA) has claimed that they intend to bring in a new code of conduct in January whilst indicating that the association still haven’t a clue what is going on under it’s nose by it’s members by questioning the extent of the problem that everyone seems to know about except the ABFA

Unfortunately the new code of conduct will be heavily watered down from what many people wish to see as they will not be outlawing the sharing of termination fees with brokers claiming laughably that it’s “against competition law”.

I suspect that the real reason could be found under the list of affiliate members / sponsors of the ABFA on their site who comprise many of the brokers who’s noses are firmly in the factoring trough and are quite happy with the status quo

Termination fees on factoring facilities – justified or ripoff?

I was approached by a company yesterday who had given notice of termination to their factoring company to be told that the factor wished to levy termination fees as the client hadn’t drawn down as much of their funding line as had been anticipated and a figure of £1,500 was what the factor told them would be charged.

The company is turning over £200,000 per annum and was drawing down £20,000 of funding instead of the £30,000 that the factor anticipated and was paying 2% over Libor for the priviledge.

Assuming that the factoring company make a turn of 2% on the funds that they put out that would equate to £200 loss of income on the £10,000 over a whole year so I can’t see how a charge of £1,500 can possibly be justified.

My personal feeling is that the charge is extortionate and trying to squeeze extra fees out of a company that has fulfilled it’s contractual obligations is bringing the whole factoring industry into disrepute.

I won’t name and shame quite yet as the charge hasn’t been finalised but I did suggest that the client might mention as part of his negotiations that the broker charged with finding a replacement factor is the “bloke that writes the factoring blog” as hopefully that may cause them to rethink their policy.