The so called alternative invoice finance market

For many years factoring and invoice discounting has been referred to as alternative finance but in recent years a new breed of invoice financier has emerged who are claiming the sobriquet for themselves and consigning traditional invoice finance to the mainstream in the process.

Many factoring insiders have concerns about the viability of the business model with little or no due diligence done on new clients, little or no security taken in the event of client or customer failure and quite a few complaints being heard about the customer service or lack thereof from one of the platforms in particular with one factoring company telling me that they have received quite a few enquiries from companies who want to switch out of internet based invoice finance to traditional factoring due to the poor customer service, not knowing what rates will be levied and the high charges if an invoice becomes overdue for payment.

It is a fact of life that brokers will introduce potential business to a factoring company but will often lose out to another broker and/or factoring company and this happened to me recently and I lost my first “deal” to an internet platform in the process.

Thumbs DownThe prospect was a construction related company turning over £10m but what concerned me (apart from the lost commission of course) was the minimal amount of due diligence that was done.

There aren’t that many mainstream factoring companies that are happy to fund construction related companies due to a variety of contractual issues but those that are, do so with a full understanding of the risks involved having inspected the underlying contracts in the process and some employ the services of a QS to ensure that they understand the risks fully.

The so called alternative invoice finance funders seem not to bother too much about understanding the contractual issues and rely more on the size and strength of the customer.

Do the many hundreds of investors looking to maximise the returns on their savings understand the risks involved every time they line up to provide funding for construction related invoices?

The alternative platforms are the darlings of the media at the moment but I wonder how much of that is down to their expertise in marketing and self promotion rather than anything else.

Personally I think that the next year or two may see some changes with at least one of the players out of the marketplace entirely and another modifying and strengthening it’s criteria and requirements but as with everything if the concept turns out to be successful we will see loads more queuing up to get into the market

4 thoughts on “The so called alternative invoice finance market”

  1. Ian. I have been convinced for a long time that these single invoice funders and the other type of Funders that operate on auction sites or who borrow from the likes of Mrs Brown etc are an accident just waiting to happen. This I think in a couple of years will be the new PPI scandal BWTFDIK! Maybe we should start setting up a website for people to claim we could make a fortune getting in first 🙂

  2. Dicky, who exactly do you think is going to claim what from whom in these circumstances?

  3. Even though Dicky’s comment was probably tongue in cheek there must be investors in spot factoring internet auctions who are sitting on big losses who may or may not have known what they were getting into.

    I was looking at the Administrators statement of a company in liquidation where a single invoice for £750,000 had been factored but the whole amount was in dispute so there was a possibility that the sum advanced by one or more investors of around £650,000 might have to be written off

  4. exitsliproad. as Ian has summised I was only taking the micky although I do believe a lot of these crowd funding type of operations are headed for trouble, take business on & no due dilligence!

    You mention who would sue who? surely most of these so called providers have Indemnity Insurance so I would assume if legal action came then the so called insurers would be fending off the claims?
    Ian now I am thinking maybe a few of us should definetly get together and set up a claims management firm waiting for the first of many claims that could hit the market maybe like garlic bread its the future. 🙂

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