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.
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