Archive for February, 2012

Big broker? Bad broker….

February 28, 2012 1 comment

Many of you will be aware of some high profile invoice discounting and factoring brokers who churn over large numbers of enquiries through what are effectively call centres. I am not going to name names, but here are my findings having posed as a potential client.

For the sake of the enquiry I ran a £1.2m turnover IT recruitment company that placed staff on a timesheet basis with blue chip clients. This is probably one of the most familiar businesses to lenders and one of the very easiest for a broker to place

Firstly i said I did not want factoring “because collections have to remain in house”. The response was that factoring would outsource the credit control effectively and that unfortunately no lender would offer invoice discounting to a business of my size

I asked how many lenders would be interested. He told me that “only three in the market” would be. I challenged him on that and then he became a little uncomfortable

I will not name the three lenders, but so far, so bad

Then i asked about rates. he said he could “get me down to 2.5%” a year, ie roughtly £30k p/a in annual fees.

i told him where to go and put the phone down


Because the business I was suggesting would appeal to at least 20 providers in the market and would certainly be eligible for invoice discounting

But more seriously, i have recently dealt with a business with an identical profile that was being charged 0.7% of turnover. Yes. less than a third that these “brokers” were quoting

Is there anything I need to add? I don’t think so

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Ease of business index

Some of you may recall the World Corruption Index i liked a few months back. Well here is an updated Ease of business index from the same source, the World Bank

And interesting reading it makes too…

Here are some highlights

– The Uk scores highly at number 7 overall but is number 68 for “registering a property”

– Germany comes in at 19 overall but is a pretty dreadful 98 for “ease of starting a business” and 97 for “protecting investors”. Why is that?

– India is a pretty shocking 132 overall and is the third worst country in the entire world for obtaining construction permits and enforcing contracts and well as ranking as low as 166 for starting a business. Quite unbelievable for an economy which is seemingly developing at a frantic rate

– The traditionally and historically trading nation, the Netherlands, only comes in at 31 overall. Below Portugal

– France is ranked very low (for an developed economy) at 44 for ‘resolving insolvency’ but is very high at 6 for ‘enforcing contracts’, which bears out my experience

– China ranks 91 overall and Hong kong at 2. Draw your own conclusions about integration in this part of the world

– The best country in the world for ‘resolving insolvency’ is … Japan

– Where is Italy? Below Albania, Mongolia and Zambia

– Subsaharan Africa scores very poorly overall, but Ghana scores reasonably well at 63 overall and Botswana is higher still at 53

All in all, very interesting stuff

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Insolvencies on the rise …or are they?

14% up in the last quarter of 2011 and 7.2% higher than 2010. Not good stats of course but have a closer look at the graph above

This covers the past ten years and what do we see? Yes. The current rate of failures only marginally higher than in 2001.

And Frances Coulson, the head of R3 is almost certainly correct in stating

With insolvency numbers historically low compared to previous recessions, she predicted that the Q4 figures represented the “calm before the storm”.

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Summary on Bank references. A good guide

I pinched this and if this doesnt put you off this fairly worthless source of credit checking, nothing will

Bank references
As part of the account opening process, the credit application form includes a reminder that bank references may be requested from time to time. It can be useful to obtain a credit reference on a new customer when starting a trading relationship.

A bank reference, known within banks as a ‘status enquiry’, is a bank’s opinion as to the ability of one of its customers to meet a specific financial commitment. A bank will only give a reference if it has the written permission of its customer and normally require a new authority to reply to each and every enquiry. There is a fee for providing references which is typically met by the business making the enquiry.

Businesses should use the following steps to request a bank reference:

Complete a request and consent form as fully as possible.
Send the whole form to the customer and request they complete the consent section and return the form to you.
Send the form directly to the customer’s bank using the attached letter.

The bank will base its reply on its knowledge of the financial standing of the customer in question and may also advise enquirers that they should not rely solely on the bank’s reply when making their decision. Banks use only standard phrases (e.g. ‘undoubted for your figures’, ‘respectable and good for your figures’, ‘customer not known to us for long’, ‘capital/resources fully employed’, ‘cannot speak for your figures’ etc.). Anything less than ‘good for your figures’ is a guarded warning.

Bank references should be used only for small value decisions or to support other reports. Remember that a bank’s loyalty is to its customer, not the enquirer.

Requesting references from other professional advisers to a potential customer could be considered e.g. their accountant. Again, the customer will need to give permission.

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Another airline crash

Is there any sector quite like the airline sector for business collapses (i didnt dare say “crashes”) ?

Malev, the national airline of Hungary is the latest national carrier to fail. And it would appear that there is no way back

See here

A good article highlighting a number of airlines in trouble and also some that have recently collapsed

But the key lesson here is that if you have any credit exposure at all to this industry, be very careful indeed.

Or drop me a line and i will do a little research for you

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Felix Salmon

In the Observer last week, financial journalists were asked which financial blog they enjoyed most. This one came out on top

And the above post is a good strong punchy summary of the crisis in Greece

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