Archive for August, 2014

A cautionary tale. How not to sign an invoice financing deal

This is an interesting case. The article is clearly and perhaps understandably pointing the finger at the lender who have certainly acted in a more than insensitive manner. The alacrity of attempting to appoint an insolvency practitioner disgusts and clearly once again brings to the fore the unhealthy relationships between some IPs and lenders

Unhealthy to the extent that I gladly walked away, with a loss of income, from one particularly seedy offer

But there is the issue of Buyer Beware and these quotes stand out

In July, Crystal Print secured an agreement to have 85pc of the value of its invoices advanced. However, Ms Charnley claims Bibby advanced much less than agreed

This is incorrect. The agreement is to lend against debtors on certain conditions. These conditions can be addressed before signing the agreement and they should have been. I am bound to say it of course, but this is where the brokers role is vital. It can be catastrophic for many businesses to be beholden to restrictions on funding that they cannot manage

This is something which can be absolutely nailed down at a very early stage.

The company signed a ‘confidential factoring’ agreement, whereby Bibby collects debts in the name of the client. However, Crystal Print director Colin Charnley said he thought he had been sold an invoice discounting deal, where clients collect their own debts.

Misled? Maybe but unlike with consumer protection there is no excuse for not checking the detail. Frankly the nature of the arrangement would have been very clear from the paperwork

Invoice financing is arguably the most vital agreement any business will enter into. It is the lifeblood and too frequently lenders have failed to understand the implications of their somewhat double glazing style salesmanship. Too frequently lenders see businesses as commodities to be treated as potential for the backslapping suits to get their noses in the trough.

With my own background being commercial rather than banking I will naturally gravitate to those that have their house on the line.

A broker’s loyalty is to the party that has given them their trust. I cannot look a client in the face unless I have found the very best arrangement for all their requirements

All the issues above could and should have been addressed. A lot of pain would have been avoided

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Gilbert and George

On a lighter note, relatively speaking, an art review is long overdue.

One of the many great benefits of living in London is the superb range of free art available. Gilbert and George are very London and very familiar. Their new show at the White Cube in Bermondsey is startling and engrossing.

As an aside, this is probably the best of the free independent galleries in London. It is a wonderful space

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More on the eurozone. Is this worse than we think?

The well known and high profile economist Joseph Stiglitz certainly thinks so

“There is a risk of a depression lasting years, leaving even Japan’s Lost Decade in the shade. The eurozone economy is 20pc below its trend growth rate,” he said.

And this from Professor Christopher Sims

“If I were advising Greece, Portugal or even Spain, I would tell them to prepare contingency plans to leave the euro. There is no point being in EMU if all that happens when you are hit with a shock is that the shock gets worse,” he said.
“It would be very costly to leave the euro, a form of default, but staying in the euro is also very costly for these countries. The Europeans have created a system that is worse than the Gold Standard. Countries are in the same position as Latin American states that borrowed in dollars,” he said.

Ok. These are opinions of economists but perhaps this relatively underreported quote is more significant? From Angela Merkel

German Chancellor Angela Merkel told the forum that it was hard to manage a currency for 18 states, when sovereign parliaments refuse to follow polices agreed by the EU institutions. Yet she insisted that the crisis countries had slashed current account deficits and the “first fruits” of durable recovery are in sight.

Maybe its me but isn’t there a sense of resignation in that quote? Of course she’s going to qualify the statement and rightly so given the possible effect on the currency but i detect a sense of ‘we would be better off out of it’

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Will the eurozone recover?

Probably the best decision made by the UK over the past couple of decades was to refuse to join the euro. It should always be remembered that there was cross party consensus on this issue with Gordon Brown being just as opposed as the Conservatives. The impact of joining the mismanaged and ill judged concept would have been catastrophic

The euro has seemingly survived the threat of outright collapse but the aftershocks of the crisis continue to this day. The US and UK economies are racing ahead. The eurozone is stuck in near recession. The contrast is startling

But are the reasons for this simply down to the currency difficulties? Yes the Russian crisis has impacted and there are no doubt other extraneous factors but there is a belief that the culture within the zone is simply not enterprising enough. This was articulated in an article by Matt Ridley in the Times earlier this week. Sadly I cannot attach a link but there were some surprising stats which could not solely be explained by the euro crisis

This one in particular

Growth in GDP since 1999

UK 30%

Germany 18%

France 17%

Italy 3%

1999 does of course predate the near collapse of the euro but not the euro itself. The figures suggest a more fundamental malaise. As I know from overseas businesses seeking finance to start operations in the UK (French in particular), the UK is seen as a good place to do business. We have advantages in many areas, some of which are created and some of which are good fortune but we shouldn’t gloat. Ultimately a prosperous eurozone means a more prosperous UK

The solution? Difficult to wave a magic wand but surely once again the whole infrastructure of the EU needs examining to see if it is delivering the right climate for business. I suspect that the answer to that is a resounding no

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Collapse of lending to SMEs

See here

Perhaps this is very much a piece that now relates to the past and its fair to assume that the figures will shortly be taking an upward swing but the decline in lending is quite startling

In key sectors such as retail trade, construction and hospitality, the relative contribution to overall GDP of those sectors has seen stronger decline than in other sectors between the pre-recession year 2007 and 2013. At the same time, lending to SMEs in the UK has contracted by £2.6 billion (£41.8 billion in 2008 to £39.2 billion in 2012)

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Banks to “refer leads”

Under new legislation the major banks are to be compelled to refer rejected loan applications to “independent lenders”. Now there is going to be a element of ‘he would say that wouldn’t he’ about the following but I think this is a very dim witted approach

Naturally the so called independents will be the lenders with the closest ties to the banks in question. And some ties are very close indeed. They key here of course is that they will not be searching the market for the best possible deal.

If this applies to invoice finance then we are talking about 40 plus active independents in the market. Will the bank search through all these lenders finding not just the best price but facility and service?

I dont think so

If they sling the lead at one independent there is a one in forty chance that will be the best available facility in the market.

Correction. There is virtually no chance if the independent lender knows that they are the only player

The solution? Well clearly the leads should be passed to decent brokers. But of course ‘i would say that wouldn’t I?’



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Lying “brokers”

Pinocchio3Ever tried to obtain an invoice financing quote online? Well if not I would suggest you do not start now. Aside from the fact that matching a lender to borrower is bout far more than bare numbers, a number of these sites appear to be little more than fronts for lazy brokering or even just one lender

To give an example. With a business partner I tested the waters of one site which promised to “Compare” costs. I am not giving the name away …of course

Posing as a straightforward £300k turnover business with a couple of years trading (no other detail was required) we received one quote back from a lender. The quote was a fee of 3.75% of turnover. This was inclusive of interest charges. Thats around £11500 a year. Not cheap

But is it the best available?

Not a chance. If these people are claiming they “explored” the market fully they are liars . Simple as that

There are a handful of lenders who would price at 3% of turnover without blinking. I would be absolutely certain that it would be easy to find a lower price. That is even before anyone has considered that our business might in fact be a very strong prospect.

And how would they know that without asking any further questions?

An absolute disgrace. No wonder so many are calling for regulation



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