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Stories Tagged ‘Invoice Factoring Companies’

There are more and more lenders entering the market of constrction factoring. This should be good news for construction companies and it may well be, however, there are some real potential pitfalls for companies that use this form of finance.

For many construction contractors this form of finance may present a real lifeline and an opportunity to finance growth but it is imperative that you understand how it works and how charges can mount.

One frustration I have is that businesses who are on the fringe of the construction industry can be assisted by more traditional factoring providers. Unfortunately lenders with specialist construction factoring products will ‘force’ these businesses down this route as it reduces their risk, reduces their exposure, increases their fees and ultimately provides a better return for their shareholders. There seems to be little benefit for the business that is ‘forced’ down this route.

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We often get asked to recommend the best invoice finance company. I thought I would look at what makes a good invoice finance company.

In part it is a case of horses for courses. Some lenders are well suited to small businesses while others are better suited to larger businesses. The same goes for different sectors, different geographic locations and different scenarios.

Common complaints with lenders surround poor service levels. I must admit in some cases it is simply because the lender has said no to a client. Sometimes this is justified and in other instances it just seems like a lazy answer rather than doing some work to solve a problem.

Some lenders genuinely pride themselves on top quality service levels and customer satisfaction. This however can be a double edged sword as the same lenders can be described as expensive in comparison to lenders who cut corners and provide a poor service.

Communication is a key factor. As an invoice finance broker I can fully appreciate this. It seems like the most basic concept in any business relationship but I am often left amazed at how many lenders simply fail to return calls or e-mails both with myself and clients.

They say that service is inseparable from the people that provide it. This means that staff within invoice finance companies need to be engaged and happy. This comes as a result of fair remuneration, good training, clear goals and a good environment to work in. Some lenders clearly provide this while I know that others simply don’t. It may be a bit of a generalisation but the lenders that treat their staff properly also seem to be the 0ones that treat their clients properly.

Construction factoring is a topic that we have covered several times on this forum.

It is a sector that struggles to find suitable forms of working capital finance as banks are reluctant to offer overdraft facilities and invoice finance companies are uncomfortable with the risks associated with the construction industry.

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We were recently approached by a haulage business based in Glasgow who wanted to review their facility. It was a very nice business and they advised that they had only ever reviewed their facility with the Scottish banks. Given the recent well publicised problems they wanted to look at other alternatives. It should also be stated that they are a Scottish registered company.

While we knew the companies that could provide factoring Glasgow to a Scottish registered company we decided to go back to the market to see if anyone new had this capability. We were delighted to see that a few new lenders now had the capability to help businesses based in Scotland and were very keen to do so.

In short we were able to source a very competitive facility for our client.

If you are a business based in Glasgow or anywhere else in Scotland it really is worth exploring what opportunities are available to you.

Recruitment finance can take various formats. Typically it depends on the type of recruitment and also the size of the company. We will look at the three main options available:

Recruitment factoring: this is suitable for recruitment companies of all sizes and for both temporary recruitment companies and permanent recruitment companies. It provides an advance against invoices raised of up to 90% allowing temps wages to be paid. It is also suitable for permanent recruitment companies but prepayments are typically around 70% for perms. Recruitment factoring is available to new start businesses aswell as larger well established companies. It includes a credit control service and can also include credit protection to reduce the risk of bad debts.

Recruitment invoice Discounting: suitable for companies that are better established and have a good credit control function within the business. This type of recruitment finance does not include a credit control service. It can be confidential or disclosed and can include credit protection to reduce the risk of bad debts. Again it can be used for either temporary recruitment or permanent recruitment.

Recruitment back office solutions: well suited to recruitment companies that want to outsource the full back office function. This service can provide finance in the same way as factoring but 100% prepayment levels can be achieved. It also includes payroll and admin services as well as optional credit protection and credit control.

If you have a requirement for recruitment finance it is worth contacting Smart Factoring Quotes to discuss your options in detail.

Factoring Rates can differ dramatically from lender to lender. We will have a look at what variables impact on the pricing of a factoring facility and then we will look at why some factoring companies are more expensive than others.

What impacts on the service fee?

The service fee is what the lender charges for administering your facility and it is typically determined by workload. This is dictated by the number of debtors you have an also the number of invoices you issue. Turnover also has a huge impact on your service fee and typically the higher your turnover the lower the percentage service fee.

The discounting fee, what impacts on this?

This is the cost of borrowing and it should reflect the risk the company is taking. The total fee is made up of the base rate and the margin. Some lenders use the Bank of England base rate while others use LIBOR. Watch out also for the minimum  base rates which a lot of lenders put in place. The margin is often dictated by their credit policies and with negotiation can often be reduced.

These are the 2 main fees but it is important to be aware of additional fees and charges. Always consider total costs when looking at different offers. Please also consider what service is actually on offer and ensure it meets the needs of your business. Factoring rates are obviously important but so are service levels and facility structure.

There seem to be several invoice finance brokerages appearing that are linked to insolvency practitioners. Only today I was asked by a client of mine why this was so I thought a post may be due on the topic.

In short the insolvency practitioners see the invoice finance leads that give to lenders as a carrot to attract insolvency work from the lenders. In fact some of the IP owned brokers will only give leads to lenders if they give them insolvency work in return. I have seen some e-mail marketing from one such broker offering 2 new deals to a lender in return for a ‘fee generative appointment’.

Reciprocity is a buzz word in many industries these days and the invoice finance industry is no different.

However, in my opinion it does raise concerns for business owners who approach these brokerages looking for independent and impartial advice about factoring or invoice discounting. There is every chance that the business will simply be placed with the lender that they ‘owe’ a deal to. If this is the case it means that they are not really acting in the best interests of that client.

I am quite often approached by clients who insist on using confidential facilities. The reasons for this can be varied and I always try to accomodate their requirement.

Traditionally confidential invoice finance has been hard to obtain as the only product available was confidential invoice discounting. The criteria for this were quite rigid and it was reserved for large, profitable business with a good finance and administration function.

The good news is that confidential facilities are now more readily available than ever. This makes the life of an invoice finance broker much easier as it means we have a wider range of products to offer clients based on their unique requirements.

Confidential facilities now include confidential factoring, confidential CHOCS there is a new confidential product due to be launched in January 2012 which we are quite excited about.

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