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Archive for March, 2015

Brazil. An economy in crisis?

Brazil Christ Statue-1In my recent piece on the excellent book Breakout Nations, I noted that the author was probably the most critical of the mismanagement of the Brazilian economy. In his view, there was an over-reliance on commodities allied to an overspend on social welfare where the desperate requirement was for investment on the infrastructure. An infrastructure so poor that it was cheaper and quicker to import soya beans from China than from one part of Brazil to another.

The book was published three years ago and his predictions have come to pass

The prospects for the economy continue to look poor. Inflation is 7.5% and interest rates have been driven higher to 12.5% in an attempt to curb this. With growth down to virtually zero it is easy to imagine that the consequence of this will be a prolonged recession

Why is an economy which is clearly stalling and has been for some time, experiencing such relatively high rates of inflation? There are a number of factors (explained in detail here) including a fall in the value of the currency which has driven up import prices but also the simple fact that index linked minimum wage levels have driven up wages at unjustifiable rates, most especially in the public sector

The government was elected on firm promises to much of the electorate and naturally minimum wages and index linked rises were clearly going to appeal to a nation where much of the electorate is far from economically comfortable. Its a hard policy for opposition parties to campaign against, not least because the damage will be caused in the medium term rather than the short term. The catastrophic shambles that is Venezuela is a perfect example of mass appeal creating chaos. Brazil does increasing look like a version of Venezuela lite and this could be a hard lesson learnt.

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Insolvency Practioners under pressure?

At long last IPs are going to be forced to give clear advance indications of the costs of an insolvency. This is not just overdue but scandalously so. Such requirements should have been in place decades ago and every experienced credit manager will recount tales of clear rip offs. The most significant I came across was executed not by some shady back street outfit but one of, if the not very, biggest name in the industry.

What will be the knock on effect of this? Clearly it could easily shake up the industry where there are perhaps too many current players and it could also strengthen the arm of medium or smaller practices prepared to play an honest game.

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Free data from Companies house

As a happy user of Duedil for the past few years, I was somewhat dismayed to see that only the most recent accounts of any business were now available free of charge. As someone who sets a strong premium on the the value of a businesses trends over any given period of time, this severely hampered my ability to credit check for my clients

Not good news and I was resigning myself to having to pay for a subscription, which does not always come cheap. That is until I read this

https://www.gov.uk/government/news/free-companies-house-data-to-boost-uk-economy

Yes. All data will now be free from companies house. Absolutely terrific news and a great initiative by my local MP, Vince Cable

Thank you

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The media and Co op bank

cooperative-bank-sign-600x401You may well be aware that I have stated on many occasions that the Uk urgently needs more genuine competition in the business banking sector. Because of this the shrinking of the Co op bank with its well publicised difficulties has been very unwelcome. Before the crisis they were actively courting the business market.

Happily it would appear that there is a gradual turn around in fortunes and within time I hope to see them back aggressively courting business

Why? Because quite frankly the high street lenders are less than enthused or professional about winning new business from businesses. This is especially true of sub £1m turnover companies. Allied to that a brash new player in the market is gaining a reputation for being out of its depth and offering poor service

The market is there to be exploited..

Another interesting aspect is the reporting. Contrast the BBC and the Guardian. One concentrates on the matter in hand and the other the chairmans salary. Draw your own conclusions

http://www.bbc.co.uk/news/business-32082605
http://www.theguardian.com/business/2015/mar/27/co-op-bank-halves-its-annual-losses

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Fundbox. Another online platform

fundbox_teamIs it possible that in then not to distant future, online “alternative” invoice financing will out perform the traditional facilities?

Despite the overwhelmingly positive publicity, that prospect is further off than many would like to imagine but there are an increasing number of new players in the market, the latest of which is pictured here.

The first slightly cruel observation was ‘here we go again’ with a group of beards in the corporate tee shirt. The look has become as familiar as a bad grey suit in the banking industry. The next thought was to wonder what they could offer that was different to what we have seen before and the answers that sprung to mind were ability to fund small items and pure speed.

A facility that can genuinely fund very small accounts with no formal contract or arrangement is welcome. It is a genuine gap in the market. Speed is also of the essence too. Tardiness by lenders can be extremely frustrating and is illustrative of many banks complete lack of comprehension of the day to day requirements of any business and how these can change. Just last month a deal I was handling was effectively lost because the client was rightly frustrated at the slow responses

This is a serious weakness in the invoice finance market

But where are the weaknesses with some of these online platforms?

Again speed is the issue and there is the flip side of the coin. Fundbox promise to fund within 50 seconds if the data stacks up. Great. Credit ratings on both sides are important but so is the contract. And who is going to read that in 50 seconds? This can lead to serious exposure

Also credit ratings vary enormously and they are going to have to be very sure of their sources. This being in the US, information will not always be easy to obtain too. Data takes analysis and should be the starting point. The risk may be fine for the very small transactions but I can foresee difficulties further down the line with certain higher value items

Lastly there is the cost. These invoices are funded by outside investors and that will not generally be cheaper than a bank. The article skipped over this point to some extent

Only last year Citibanks invoice financing was hit by a large scale fraud which was long term but not particularly sophisticated. I fear that some of the wide eyed new facilities are very open to similar which in the event of a high profile large scale calamity will send investors running possibly putting back the enterprise many years. In fact this has been seen already in the UK

Ultimately cost of borrowing equates to risk. Or maybe we should say perceived risk. To remain competitive in the market the investors confidence has to remain strong. Lets see if they can maintain that

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Boom in Asset based lending

This is one of the articles that speaks for itself.

Businesses in the UK received a record high GBP 19.4 billion of funding through asset based finance in Q4 2014.

The increase is of GBP 1.6 billion on the same period a year ago, according to the Asset Based Finance Association (ABFA), the body representing the asset based finance industry in the UK and the Republic of Ireland.

The ABFA says that this jump in the use of invoice finance and asset based lending (borrowing against the value of the businesses other assets) is now primarily driven by businesses funding growth plans rather than replacing their use of traditional term loans or overdrafts.

According to the research, businesses are now using 38 % more asset based finance than at the height of the recession in December 2009, when GBP 14.1 billion was provided.

The ABFA says that the speed at which asset based finance facilities can be agreed or extended makes them an ideal way for businesses to respond quickly to growth opportunities arise as the economy recovers.

Additionally, Jeff Longhurst, Chief Executive of the ABFA explains that there is also another GBP 20.5 billion of unused facilities agreed with businesses which they could drawdown if they required it.

80 % of asset based finance is invoice finance, in which businesses secure funding against their unpaid invoices, while the other 20 % represents the area of asset based lending, in which businesses can raise money secured against a range of other assets they own, including inventory, property and machinery.

http://www.thepaypers.com/default/asset-based-finance-hits-new-record-as-uk-businesses-go-for-growth/759083-0?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+thepaypers/cfKW+%28The+Paypers+Headlines%29

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Milliband’s problem

Leader of the opposition Labour Party EdThis is not a political blog but any aspect of business or finance is inevitably affected by political decisions and with an election looming, future policy is very much on many peoples mind. For many in business, the present Labour leader certainly raises many concerns

http://www.telegraph.co.uk/news/general-election-2015/11471772/Ed-Miliband-leaves-business-out-of-Labours-five-key-election-pledges.html

Labour is never going to be the natural “party of business” but at the same time, the major political parties do need to reach across divides if they are to win what will be tight contest. Milliband’s continual and almost seemingly obsessive refusal to engage with business on any level strikes me as being either extremely naive or simply driven by dogma

His predecessors, Blair and Brown dropped the word enterprise into every speech at every opportunity and there were various pro business initiatives. Milliband is politically more to the left and it might also be explained that he is from a certain community which is perhaps rather sniffy about “trade”.

No he is no aristocrat but the north London self styled intellectual sect is probably about as disengaged from the average South London car dealer or midlands factory owner as you can get.

Other than that, I cannot find another explanation. There may well be some hostility to big business in the uk but on the whole the country is geared towards enterprise both culturally and politically. The british tend to respect the “self made man” more than we would see in other cultures. The economy is strong and the electorate is well aware that much of this is based on and reflected in the SME sector. Furthermore a very high proportion of the workforce are employed by SMEs and they will naturally be concerned about policy affecting their prospects

Milliband appears to be more concerned with shoring up his support in the Public sector than reaching out and that will not get him elected. Even the hard left Ken Livingstone used to give some remarkably positive and perceptive business friendly speeches. This resonates and Milliband seriously needs to think again

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