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.
Read Full ArticleWhen speaking with clients we are often asked to source invoice discounting facilities on their behalf. When I press the prospect on why they want invoice discounting it is often because they feel the facility is confidential and they want to retain control of their credit control.
I think traditionally invoice discounting was confidential but I am seeing more and more lenders insisting upon disclosure and disclosed invoice discounting seems to be more common.
If you are looking to retain control of your credit control then invoice discounting whether confidential or disclosed will meet your needs. You may also consider a CHOCS facility which is essentially factoring but allows you to do your own credit control. CHOCS stands for Client Handles Own Collections and just to confuse matters it can also be disclosed or confidential. Typically a CHOCS facility will be more readily available than an invoice discounting facility because the criteria are less stringent.
If you are looking for a confidential facility then obviously a confidential invoice discounting facility will meet your requirements. However, you may also wish to consider confidential CHOCS which is more readily available and also confidential factoring where credit control is done by the factoring company but in the name of your business.
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.
Sports Bras, you may be asking why on earth we are commenting on sports bras?
Well we want to wish Active Sports Bras well with their launch on Monday, February 20th.
Active Sports Bras are a specialist online retailer of sports bras. They provide the top brands of sports bras at discounted prices.
Brands include Panache, Shock Absorber, Freya and Sportjock.
Active Sports Bras have also launched “Be a sport, Take a mate” in an attempt to get more women back to sport. They advise, “It is a frightening statistic that only 1 in 8 women participate in any type of sport. In poorer areas this is even lower. We want to encourage women who go to the gym or are a member of a team or club to invite along a friend or colleague”.
Good luck to Active Sports Bras with their launch!
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.
We often receive inquiries from clients who are keen to transfer from one lender to another because the credit control is poor.
I am afraid to say that often the provider accused of providing a poor service is a bank owned factoring company. However, when we ask how the factoring company was chosen there is also a common theme. They were either chosen because that is who the business banks with so it was a default choice or because they were the cheapest.
Without going to the market it is almost impossible to understand what your options are. If you don’t understand what your options are then how can you make an informed decision?
If you have chosen the very cheapest option then are you really surprised that the service does not quite meet your expectations? Would you expect free champagne on an Easyjet flight or free home installation from Ikea. No, of course you wouldn’t.
Typically with credit control from a factoring company you will get what you pay for. The larger bank owned factors will typically fully automate their credit control and it will be done by automated letters and month end statements. They may call your largest debtors but it will be a hands off approach.
Other factoring companies will provide a hands on credit control service where they call each debtor and have open communication with you the client. This however is time consuming and as such the cost for such a service is more expensive.
When choosing a factoring facility it is important to understand what level of service you expect and choose a lender accordingly.
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.
Smart factoring quotes are proud to announce the launch of a factoring blog on their new updated website.
The factoring blog is aimed at business owners who have a factoring facility or are looking for a factoring facility. It will provide relevant industry updates as well as discussing topical issues that business owners encounter both with factoring facilities and also with the economy at large.
We will be welcoming any comments but don’t want to become a message board for rumours or scaremongering.
