Clueless underwriters

Over the last few weeks i have found myself despairing at the attitude of certain underwriters in the invoice financing sector. Like a punch drunk boxer past his sell by date they seem only to be aware of what can go possibly go wrong and have completely lost their nerve and sense of perspective. Some of the rubbish I have had to listen to in recent weeks has been beyond belief and I will save for another day but firstly i will recount a message passed back to communicate to one of my clients that demonstrated once again that there is too frequently a grand canyon of understanding between lenders and actual businesses

A client of mine has built a recruitment business supplying temporary staff to charitable trusts, local authorities and other large bodies. It has taken him 20 years and the business has grown to a turnover of £7m a year. He has used invoice financing for over 17 years

He has not previously and will not sign a personal guarantee because he rightly believes that all the debt is very collectable in the event of his unlikely insolvency

The lender has still demanded a PG. The reason given? The one the underwriter expected me to communicate?

“we need it to demonstrate his commitment to the business”

Why use CPCM?

A little shameless promotion. Copied from a recent mailshot

Why use CPCM?

Invoice financing can be a minefield. An inappropriate arrangement can severely damage you or your client. Simple “introductions” to lenders do not suffice.

Full brokering is essential and here is why

1. The market
Full understanding. I was recently hired to analyse the full market and all participants for a major international bank.

2. Genuine impartiality
I work solely for my client. I do not seek reciprocal leads from lenders

3. You or your client
Nine times out of ten I will meet. It is essential to understand the business, the people and the future as well as current objectives

4. Debtors
The asset is the debtors. I have analysed debtors for over 30 years. Understanding and obtaining best value for the asset is key

5. The lender
I will attend meetings between the lender and the client

6. The solution
Satisfaction in a job well done. Finding the right combination of price and facility is the true reward.

Lastly if I do not believe invoice financing is the correct solution then it is my duty to inform the client

HMV. The comeback?

It would appear that HMV is experiencing a significant revival. As longer term readers of this blog will know, HMV is a case in point that I have been following for some time, partly because of my experience of the sector but because it has been a near perfect illustration of wider developments leaving a business with an uphill battle and in this particular case, like a rabbit in headlights

GE Capital. The end

GE are divesting themselves of their finance arm, GE Capital.The plan is for the group to concentrate on its core manufacturing businesses and pass off the finance arm to the specialists, ie the banks. This piece covers many of the arguments in favour, some of which you may or may not agree with.

Prime amongst these is the suggestion that these big conglomerates cannot handle lending as efficiently as the the mainstream banks. Really? Dare we mention the word “bail out”? Whatever the certain statistics suggest, GE did not bankrupt itself in the process of losing control of financial transactions.

That may suggest to many a very cautious lender but I can only report as I find and what I did find was a lender that assessed prospects in a professional and often enterprising manner. More than once I found that they were the one lender interested in decent prospects that had been dismissed by the habitually lazy minded underwriters time serving at other lenders

Yes, GE could be a little ponderous and bureaucratic but their retention of clients was the strongest in the sector

To all intent and purposes they withdrew from the small/medium asset finance market late last year and i thought that was a great pity. To my mind they underestimated what a strong brand they were.Some lenders names are close to toxic but many of my client’s certainly responded well when GE was suggested.

I will miss their presence in the market but is it also worth pointing out a larger point to this change in strategy?

The shift from finance to industry is surely something that cannot go unremarked upon

Fraud in invoice finance. Many thanks to Ashley Finance for notifying the market

See here

To quote

The company is warning others to beware after two of its small business clients lost over £100,000 between them.

In both cases, which involved firms in Wigan and Manchester, the fraudsters met their victims at networking groups. They posed as genuine businessmen who had clinched a major order from a big company which they were unable to fulfill themselves and offered a share of the profits in return for help to buy stock.

“In both these cases the fraudsters had infiltrated networking groups, where people tend to assume they are dealing with bona fide businesses.

“They then cleverly use the conversation to identify firms with access to established factoring or invoice finance facilities, and claim to have won a big contract which they are unable to fund themselves. They persuade victims to buy stock and invoice them for it and, to build confidence, may even pay the first invoice.

“These are highly sophisticated fraudsters who catch people off guard, come up with a plausible story and even provide a viable paper trail using the names of real companies and directors who are unaware of what is happening. However frauds such as these can be devastating for small firms.

Paperlinx. An object lesson

With a high profile in the ever nervous and fragile Printing industry, the collapse of Paperlinx has sent shock waves through the sector

But why has the business collapsed? The above article gives a number of reasons, all of which stem from sheer bad management but the most striking of which was;

“I have been observing Paperlinx for years, and their credit control was the worst. They were absolutely hopeless at getting the money in,” says William Martin, the managing director at Aston Colour Press in Twickenham. “I pay my suppliers promptly at the end of the month. I’d have the money ready for Paperlinx and they wouldn’t even ask. Other merchants would be straight on the phone, whereas they were giving me 90 days credit without me wanting it or asking for it.”

It is extraordinary that a low margin business cannot give priority to credit management. Sometimes you just feel that for some finance teams it is an area they do not wish to address or worse still, simply look down on

I have experienced this is some industries and in this particular case, whoever was responsible has no further role to play in the commercial sector

Mike Ashley. Right or wrong?

I came across this story on the BBC website which is clearly attacking Mike Ashley, the high profile owner of Sports Direct, on a number of fronts of which the administration last year of USC is perhaps the most significant and led to this quote

Conservative MP Simon Reevell told the Scottish affairs committee: “Sports Direct had a company that was losing money, they now have the same company where the debt liability that had been incurred has gone.”

“At one level, to use a technical phrase, this all looks well dodgy,” he added.

The assets of USC were brought by another Sport’s Direct business. It clearly does not look good but “dodgy”? The fact is if it is legal then it is legal.

Should the law be tightened up? Maybe so, but whatever anyone thinks of Mike Ashley and his business practices, if he has not breached any laws then quite frankly he should left to get on with running his empire rather than answering to parliamentary committees and the IOD

A more balanced view is here

Robert Peston on Uk productivity. Is he right?

I sometimes have mixed feelings about Peston’s analysis on many matters but he is an effective and important communicator. More than anyone else in the uk, he would be first port of call for many wishing to understand economic arguments

His latest piece on uk productivity did slightly leave me questioning a few of the points he has made. Firstly

On the basis of the figures published on Wednesday, if the productivity trends of 1992 to 2007 had continued from 2008 to the end of last year, output per job would be 15% higher than it is, and output her hour would be 17% higher.

Which means, all other things being equal, each of us would be paid 15% more in total, and 17% more for each standard shift we put in.

Surely not? Productivity certainly does not translate into to wage increases. This is simplistic frankly because if competitors are increasing productivity at the same rate (technology being the driver in most instances) then you are only keeping pace with all the consequences that entails

2. Since the crash, too many lame duck firms have been kept afloat, under pressure from politicians, preventing the necessary re-allocation of capital from low-productivity firms to better ones;

Really? Lets look at our competitor economies again. Only the USA has such liberal insolvency laws. The capability for businesses to fail and start up again is far greater here than in most nations

3. As a nation we’re lousy at innovation and we don’t have enough highly skilled people (compared with Germany, for example);

This has a whiff of the “manufacturing fetish” about it with the obsession that the only real innovation is in hard produced goods. This is nonsense and whilst there are few stats to hand, the Uk is certainly not seen as lacking innovation in services and many areas such as software and hi tech. Quite the opposite

4. The City is too short-termist and is hopeless at investing in winners;

Come on now. The first part could be justified perhaps but the second is simply lazy journalism

From the Uk’s leading economics journalist you would hope for better

Invoice financing. The need for a shakeup

At the present time I am attempting to find the right lender for a particularly decent prospect of mine in the software business. My client’s terms are far from demanding and you would assume that with so many lenders in the market competition would be fierce.

Far from it

Without going into laborious detail, the invoice financing sector can often give the impression that they use just one underwriter between them. An underwriter who can do little more than repeat the same mantras and is too idle to look at a prospect in a professional manner

To briefly explain, the “difficulty” with this business is that they supply build and support. Apparently this would lead to one being “set off” against the other in the instance of my client defaulting. It would appear that this has happened before. Once i would imagine

What a load of rubbish. The two contracts are completely separate. Any attempt to not pay for completed ‘build’ because of no support (which If the lenders had bothered to inquire, is a very minimal element financially) would not last five seconds in court.

In effect these lenders are saying they will not back an entirely contractually enforceable watertight debt to a blue chip client. If I had taken such a stance in the commercial world of credit management I would rightly have been fired

If the underwriters cannot understand legal enforceability then they should find a new career. Parking tickets would be a good place to start.

Fortunately I can credit a couple of lenders for taking the time to work with this and a solution may be in the air and perhaps even more significant is the entry of the online lenders into this market with an open and realistic approach.

This will continue to lead to a shake up in the industry and is more than welcome. There is too much deadwood