A new article on my views on invoice financing

 

To be published shortly by a leading professional firm

When ‘invoice financing’ or ‘factoring’ is brought up as a financing solution, there is often a rolling of the eyes and memories of pushy salesmen straight out of college telling you how to run your business with all the charm and subtlety of a double-glazing salesman. Sadly, this image was all too prevalent in the recent past and, as brokers, we have plenty of examples of dismal sales staff and awful contracts from which we have rescued clients.

Invoice financing has often had a mixed reputation. Major lenders were prone to forcing unsuitable and expensive contracts upon clients which were laden with hidden costs and restrictive terms. There was also the tendency to suggest that ‘factoring’ (whereby they control your credit control) was the best solution – it rarely was. Furthermore, lenders often had unhealthy relationships with other professions where the last consideration was the borrower’s requirements.

This has largely changed. The advent of peer to peer lenders has greatly shaken up the market and whilst their offerings and reliability can be mixed, they have often offered greater flexibility and ease of approach with admittedly higher costs. Costs have frequently been an issue within the invoice financing sector, but we are now seeing the charges being substantially reduced to the levels where they are less than the cost of an inflexible overdraft. Competition is key, but it has to be utilised and a professional broker is the best source for doing so. The Andrew.oppe@sancus.com has to be fully independent, and must also commit to representing the borrower and absolutely no other party. Also, in response to certain difficulties within the industry, a code of conduct was imposed by the Asset Based Finance Association (‘ABFA’) and to the surprise of many, this has been largely adhered to.

There are over 50 active lenders in the market. They range from the major banks right through to specialists in certain sectors and locations. The choice is immense and the factors which need to be considered to ensure the right decision is made are wide ranging. Many borrowers and lenders can neglect to remember that a facility is not just for current requirements but also for the future. Each lender will have their own preferences in terms of your debtors and your sector and it is vital that the correct decision is made.

Our belief is that relationships are key. Unusually for brokers, we always endeavour to meet our clients before engaging lenders. The personalities involved can be key and face-to-face meetings are always helpful in uncovering the details that are so essential to understanding your business.

That aside, there are key issues which need to be addressed well in advance of a commitment to a contract and this is a vital component of any transaction. Export is often overlooked as is the very nature of the terms and conditions. Also, the status of the debtors can be key. These factors have to be weighted and negotiated with lenders.

So why choose invoice financing?

The plus points are strong. The invoice is an asset and this can ensure that no other security has to be given. It cannot beassured that the dreaded personal guarantees will not be requested but they can in some cases be ‘negotiated away’. Furthermore, the facility will grow with your expansion. As your invoicing increases, so can your borrowing. Also, the terms are now flexible with many contracts having short or no notice periods or minimums. If you are unhappy with your lender, it is relatively easy to move. Lastly, because it is the most competitive sector of lending, responsiveness is quicker than the slow slog through the major banks systems and call centres.

Finally, and perhaps most importantly, we believe in long term relationships and if another form of lending is more appropriate then we will genuinely recommend that course.

Equipment finance. A strange sector

And also a nice excuse to post a photograph of an extraordiary piece of machinery

I do have a number of equipment financiers and one in particular is a delight to deal with. They offer very good rates but others in this market make little sense

One prominent lender met me last week and aside from asking me to pay for coffee because he had “forgotten his wallet” the whole approach was one of ‘doing me a favour’ . They are not exactly the cheapest in the market so im simply not going to bother

There were also various demands made which struck me as ludicrous. When I stated that no such demands had been made in nine years as a broker. I recieved a very sceptical look.

Charming

A very strange way to build your business

Pattiserie Valerie and auditors. What should be done?

Over the recent weeks, I have had conversations with certain accountants who have been keen to defend the role of Grant Thornton in the near collapse of Pattiserie Valerie. I find this extraordiary

We do not know the full facts yet but it clearly points in two directions. Fraud or gross incompetence and at this point it should be considered the consqueneces of gross incompetence in many professions.

Fraud is a different issue and clearly the penalties are already in place but what about the victims of incompetence?

The defences for the audit were based on the fact that “everyone makes mistakes” and its easy to overlook a transaction. Of course that is true but two loans of £10m? Isnt that going to actually stand out on the balance sheet and bank accounts? I thought accountants reconciled bank accounts to balance sheets? I thought that was basic?

And is it really too difficult for an auditor to check the charges registerd by banks at companies house? I do and its immediately available and free. Doesnt cross their mind at all?

The excuses being made are inexcusable and gross failures in other professions are seen as an embarassment and are penalised.

Of course some may ask who the victims are here. That I can answer

Pattiserie Valerie didnt collapse but it was a close call. If it had hundreds of unsecured creditors would have been hit. Hit straight in their pockets and without the ability to resort to the government to bail out their failures

I believe that these creditors should be given the right for full compensation and the audit firm should be responsible.  Its their role to verify the information that the public rely on. They failed.  I would also be curious to know the feelings of the credit insurers in this particular case

I would actually go much further in the action but this would suffice for now.

 

Dyson seen as the enemy

James Dyson has been heavily criticised for his strongly pro brexit stance and now hes picking up a torrent of abuse for opening his factory for an electric car in Singapore. This is a typical piece from an unsurprising predictable source

The precise reasons for the location of his new factory are of course not known by his detractors but that seems to hardly matter. It would appear that someone who has created thousands of jobs in the Uk and paid an enormous amount of tax owes a debt to those that pontificate from the sidelines.

It might also be pointed out that he regularly faced bankruptcy when building his business and certainly had his house on the line. As many small business people know full well, this is a different world to a gold plated public sector pension or a drift upwards in some dreary corporate structure

That is not to denigrate others career choices but until others have been down the same path and achieved the same startling level of success then I would suggest in polite terms that they hold their tongues.

There is one truth here which cannot possibly be countered. Its his company and he can do what the hell he likes with it.  He has not in any way abused his power, success and wealth.

But it works both ways and business owners do have wider responsilities. My next piece is a slightly different take on a rather obvious target.