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Archive for November, 2015

“Zombie” companies. What a nonsense

342035-zombies-revolt-of-the-zombies-poster copyA couple of years ago I posted in response to R3’s assertion that there were simply too many “zombie companies” trading in the uk. These were businesses that were simply paying interest on financing and not paying down the debt. The prevailing view was that these businesses should fail and presumably restructure. I could not agree with this argument

Every business is liable to have difficult times but why should the immediate reaction be a dive into insolvency? So what if a business is managing to service it debts with the possible prospect of better times around the corner? Why the impulse to ditch the creditors and thus cause more difficulties in the wider market with a prevalence of bad debts

R3 are the insolvency body and they are naturally representing their interests but it was I felt a viewpoint given more credibility than it deserved

So they may have had mixed feelings about reporting the following

According to R3, the number of businesses in this position has fallen to 69,000 from 154,000 in August 2014 – the lowest level since the survey began in June 2012 – while fewer businesses have needed to negotiate payment terms with creditors.

 

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More on ban on assignments

November 12, 2015 1 comment

A little more detail here 

Many thanks to Andrew for his salient points but my further thoughts are ones of slight bewilderment as to why creditors believe the BOA to be in any way necessary. As stated before, the idea that invoice finance is a sign of financial instability is laughable and surely the only result of the restriction is to narrow the field of suppliers?

Is that good business? I hardly think so

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Andrew Howard on DBIS

My good friend Andrew Howard from Platform Black adds valuable comment to my last piece

DBIS did a great job. In particular, they spent a lot of time consulting with ABFA and Invoice Financiers, including P2P financiers such as ourselves. This ensured they got a good understanding of what the underlying problems were. Disappointingly, there are still a few ‘fishhooks’; in particular the inclusion of a ‘confidentiality’ clause – which may allow BOA to creep in under another guise; and the legislation is not intended to be retrospective – this may cause issues where contracts are rolled over or long term, and therefore the BOA remains.”

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Ban on assignments to be lifted.

s300_department-for-business-innovation-skillsOne of the most outdated and unnecessary clauses imposed by certain creditors on their suppliers is the “ban on assignment”. This effectively prevents the supplier for invoice discounting or factoring the debt. You may ask why this is necessary and i will come to that

I do know how harmful this can be. This was quite common in construction and I know of one instance whereby a contract was cancelled by a main contractor on this basis sending a fairly well established electrical subcontractor in to administration. I have little doubt that the clause was invoked with a degree of glee

That can no longer occur. See this from the DBIS.

Businesses will be freed from restrictive clauses in contracts that prevent them from gaining invoice finance when new measures come into force early next year. The move will open up more funding opportunities and specifically benefit small businesses.

Invoice finance allows businesses to apply for finance using invoices for money owed to them as security. This means that, in some instances, they can get money faster than if they waited for their customers to pay them.

More than 44,000 businesses receive over £19 billion of funding this way at any one time, according to the Asset Based Finance Association, which represents the invoice finance industry in the UK.

But the size of the market is limited by clauses designed to prevent a supplier from sub-contracting work.

These clauses have the unintentional consequence of blocking invoice finance arrangements and will be nullified, while retaining a customer’s right to prevent traditional sub-contracting arrangements.

There are further quotes in the piece highlighting this as a particular problem. In truth, in my experience, it is far less common than indicated. Usually where it remains in a contract, it is easily removed upon request. Why does this clause sometimes still appear? This brings me back to my original point.

Factoring, which was once the dominant form of asset based lending, was seen as a “lending of last resort”. Only to be used by firms genuinely struggling. Maybe at one time there was some truth in this when the charges were considerably higher and overdrafts were easier to obtain but the landscape has changed enormously. Invoice discounting is now the most logical and often most cost effective form of finance

These clauses were a remnant from the days when it was assumed that such borrowers “must be in trouble”. There is also a more cynical view which is perhaps illustrated by my example above, whereby this remains as a clause to invoke unexpectedly an to the creditors advantage

Thanks to the Department of business innovation and skills this is something we can finally wave goodbye to

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The Sales cycle

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Demolition Blues

Earthquake+Damaged+Building+Blown+Up+Controlled+B-g3Wj8XZYEl-2This is a good story…

I have recently had reason to investigate the possibilities of funding demolition companies and whether they looked upon favourably in terms of the contracts amongst other aspects. The feedback has been quite positive although the extent of demolition work is more involved and longer term than we may believe, but overall funders like this sector

Naturally one of my questions was “what can go wrong?”. This is always something that brokers and lenders have to consider. One very good contact of mine at a lender with significant experience said “funny you should say that”

Apparently they had a client who went into pre pack administration due to an avalanche of writs and claims. Why was this you may wonder? Finished the job late? Left the site in a mess? No

They blew up the wrong building…

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“Lazy” Competition and Markets Authority

Bank charges are a dull subject and perhaps even more so when discussing personal banking. We are probably all fully aware that our natural lack of interest benefits the banks greatly. Lets face it, few of us wish to spend the evening poring over the charges on a depressingly low bank statement after a long day dealing with clients finances

So in many ways we leave this to various independent bodies to make sense of the market and at least attempt to regulate and encourage genuine competition. There has been some progress on this but not in this case

To quote

Competition regulators are “lazy” and “passing the buck” as their probe into the banking market failed to find crucial information on the cost of bank accounts, according to MPs.

But bosses from the CMA were unable to tell the Treasury Select Committee how much it costs for banks to run customers’ current accounts or how much customers pay for them.

Whatever these “lazy” public sector quango types have been paid it is too much but perhaps they would struggle to get a grip on that number too

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