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22 Sep

Factoring Advice – Who to trust? »

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When looking for factoring advice I am always amazed at who people approach. I accept that my views may be tainted somewhat as I am a factoring broker but it is what I specialise in and I know and am 100% impartial.

Let’s have a look at who business owners will approach to obtain a recommendation for factoring:

Bank managers – your bank manager will only ever recommend their own bank’s factoring company. They are heavily targeted to sell this product so you will receive a single recommendation not taking into account what your requirement is or what the market can offer. In contrast a factoring broker can look at your requirement and recommend the lenders best placed to meet your needs.

Accountants – unfortunately a lot of accountants take commissions from invoice finance providers (as do invoice finance brokers) The problem is that accountants do not specialise in setting up invoice factoring facilities and often do not look at it as in depth as they should. They will also have a few localised relationships rather than using the whole market.

Brokers owned by factoring companies – some brokers are actually owned by factoring companies. As such guess who they are most likely to recommend? If you are using a broker at least ensure they are independent and impartial.

Brokers owned by insolvency practitioners – this may seem like a strange relationship but insolvency practitioners are keen to be appointed by factoring companies. If they can offer factoring companies new business they are likely to receive more appointments. As such you could find yourself placed with a factoring company they owe a favour to rather than the one best placed to meet your needs.

In my opinion you should be taking factoring advice from a specialist and someone who is 100% impartial and independent.

There are a lot of good brokers in the market who are specialists and totally impartial.

At Smart Factoring Quotes we are totally independent and impartial. We are also specialists as invoice finance is all we do.

02 Sep

Cash flow problems »

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Cash flow problems within your business can be solved by looking at several solutions.

Some of those solutions for cash flow problems are financial solutions and involve borrowing money or restructuring existing facilities. The others are operational changes in terms of how you operate your business. Let’s look at each of them briefly:

Working capital facilities

You could look at an overdraft, invoice discounting or factoring facility. If one of these is already in place you could look to restructure to ensure the maximum amount of cash is generated for the minimum cost.

Asset Refinance

If you have any assets within the business you can look at refinancing these assets. This will mean an injection of cash however it can prove costly in terms of interest costs and you should consider the cash flow implications of the monthly repayments. If you already have asset finance facilities in place it may be worth refinancing to reduce the monthly repayments.

Remortgage

If you have a mortgage or an unencumbered property you could look to refinance this to raise money or reduce the monthly repayments.

Collect in money owed

If you have a debtor book it is important to ensure that debts are collected in on a timely basis. Your credit control skills could vastly improve your cashflow. Can you offer a settlement discount to get paid quicker?

Supplier Terms

Can you negotiate better terms from your existing suppliers or can you approach alternative suppliers with a view to obtaining extended terms?

Cost Cutting

Can you cut costs within the business by cutting out unnecessary services, insurances, staff members? You may need to make some tough decisions but you have to protect your business.

31 Aug

Import Finance and Factoring »

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Trade finance facilities such as a letter of credit combined with a factoring facility can provide an ideal solution for importers. This combination can allow importers who take confirmed orders from reputable customers to pay their supplier. By funding the full trade cycle it allows them to raise finance from order right through to when their customer pays.

How does this work?

  • The importer receives a confirmed order
  • They place that order with their supplier
  • A letter of credit is raised in favour of the supplier
  • Good are shipped and when received the supplier receives payment from the LC
  • Goods are delivered and an invoice is raised
  • The factoring facility repays the LC
  • When the customer pays the factoring facility is repaid

Requirements:

  • A confirmed order
  • from a credit worthy customer
  • usually a 20% profit margin is required

Security

Some banks require tangible security in the form of cash cover or a charge on property. However, within the market there are lenders who will happily raise an LC on the back of a confirm order.

02 Aug

Invoice Finance or Overdraft »

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I quite often speak to businesses who are considering whether to use invoice finance or an overdraft. They will usually ask which is the cheapest.

In short an overdraft is almost always cheaper than an invoice finance facility. I have read on other websites that the interest rates are lower for an invoice finance facility than they are for an overdraft and I would agree. However, the interest or discounting fees on an invoice finance facility is dwarfed by the service fee costs. By way of a simple comparison an overdraft may attract a 1% arrangement fee so for a £100,000 overdraft the arrangement fee is £1,000. This is compared to a £100,000 invoice finance facility where a 1% service fee could be levied against the gross turnover of the business. If the VAT inclusive turnover is £1m then the annual service fee is £10,000.

So is an overdraft cheaper? Typically yes.

So why would a business use an invoice finance facility? In short because an overdraft is not available. Banks no longer secure overdrafts by way  debenture where the major asset is the debtor book.

Therefore for many businesses an invoice finance facility is the only option. If you are one of these businesses looking for a working capital facility to ease cash flow pressures it is important to consider your options. Whether you are factoring or invoice discounting it is important to remember that the lenders are not the same. They all have very different capabilities, criteria and pricing structures.

02 Nov

Bankers – The New Retailers »

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It was while reading another forum I realised the frustrations business owners have with modern day bankers. In short they are constantly trying to cross sell business owners products they either don’t need or can get elsewhere for cheaper. However, when it comes to lending money they are rarely anywhere to be seen.

The modern banks that populate our high street today consider themselves as retailers and this is a message delivered to the employees of these banks on a daily basis. The buzzwords such as ‘cross selling’ are the main focus of all the banks and this theory is supported by businesses who apply for loans to help grow their businesses only to be bombarded by calls to sell them insurance.

It is fair to say that anyone that you meet face to face in a bank or speak to on the phone will have some sort of sales target. These targets drive behaviour and unfortunately advice.

The redundancy policies of the banks over the last decade have seen experienced bankers and lenders replaced with young sales people. The decision makers are a minority of people in an ivory tower they call the credit department. As such you are relying on the report that your ‘sales contact’ will submit to this credit department. Far from ideal as your contact will have spent more time attempting to sell you insurance than they have understanding your business and it’s real requirements.

The invoice factoring industry is not altogether different. It remain sales focused but on the whole it concentrates on products it understands and delivers. Another important difference is access to decision makers. Within the invoice finance industry it is possible to access decision makers and as a business you can really benefit from this.

20 Oct

Invoice Discounting v Overdraft facility – Fees »

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Invoice discounting v Overdraft facility

This is a question that I am often asked and unfortunately it is a purely academic question for most businesses. Due to certain test cases relating to floating charges banks are no longer comfortable to lend on overdraft where the major asset within a business is the debtor book. On that basis invoice finance is typically the only option available to a business.

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03 Sep

Santander Invoice Finance »

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Santander Invoice Finance is obviously the invoice finance arm of Santander Bank. Unfortunately they are not a company that I will be recommending at this stage.

Having rebranded their banks under one banner they bought the small independent invoice finance company called Liquidity and rebranded as Santander Invoice Finance. At the time this raised a few eyebrows and was seen as dipping their toe in the water by many.

I have had a few dealings with Liquidity and unfortunately they were not good ones. The feedback from clients was poor and their communication was equally poor. This poor communication was a criticism of clients and something that I experienced personally along with an air of arrogance.

However, I did have hopes for the business under the Santander banner. They have recruited new sales staff some of whom I know personally and are well respected in the industry. There is plenty of room for another bank owned invoice finance company and I was keen to see what they had to offer. I was hoping for a well funded lender with a flexible approach and a quick turnaround. Unfortunately, I discovered it was business as usual with miscommunication and a poor understanding of what they could and couldn’t do.

I approached them on behalf of a client looking for a £2m invoice discounting facility. I was assured early in the process that they wanted to support the proposal and they did a survey at the clients premises. While a few issues were highlighted they remained supportive and confirmed to me on a friday that the deal was underwritten and a formal offer letter would be produced the following tuesday as monday was a bank holiday. A job well done – or so I thought. No offer letter was sent on Tuesday and late that night I was informed that the deal had actually been declined. In fairness this decision was appealed and Santander Invoice Finance did make an offer but it was vastly different to the original offer and required that the client inject his own funds into the business and provide a personnal guarantee for £300,000. This was simply not feasible and I sense they knew that.

The consequence was that the business was potentially left without a funder as their existing lender no longer wanted to support them as they didn’t like the sector.

I accept that these things can happen but unfortunately I sense that little has changed at this invoice finance business even though the Liquidity name has been dropped and the big brand banner of the world 8th largest bank (by market cap) was attached to it. I am sure that things will improve at Santander Invoice Finance and I feel that the invoice finance market will be better for it. However, my personal opinion is that I wouldn’t want to be a Santander Invoice Finance customer just yet.  The new structure is still being tweaked and the new staff are settling in and trying to learn the processes or hopefully develop processes. As such I feel that the planned growth will mean turbulent times are ahead and until things settle down I feel that there are other lenders who can offer the same facilities from a more stable base.

I feel that there are some quality independent invoice factoring companies who will provide a better service level and a more robust sales process at this stage. The other high street banks have some good invoice finance offerings also but as always it is important you select the best lender to suit your business and it’s needs.

I certainly won’t be recommending Santander Invoice Finance to any businesses in the near future.

17 Aug

The Bank Says ‘No’ »

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In a recent study by the Institute of Directors (IoD) is was found that 1 in 4 UK businesses have tried to access finance via their banks. Unfortunately almost 60% of those businesses had their applications rejected. What was more worrying was that 83% of those businesses has received no information regarding the available alternatives.

The banks should be offering the government’s Enterprise Finance Guarantee Scheme (EFG) whereby the government guarantee 75% of the facility thus limiting the banks exposure to 25%. There is an argument as to why the banks would lend 25% against a project or to a business that they didn’t believe in but it does at least limit their exposure. They should at least be promoting this facility but it seems to face the same issued that the SFLGS did in terms of lack of acceptance by the banks.

On that basis it is interesting to see invoice finance providers bolstering their offerings with the EFG scheme. I am not sure how active they are in lending but I have seen a fair amount of PR relating to invoice finance providers offering the EFG which is more than can be said of the banks.

But realistically what are the finance options outside the banks?

Well beyond the banks asset finance arms who offer finance against real business assets. They tend to avoid softer assets such as IT and office furniture but will happily consider plant and machinery along with vehicles. Just because you bank has said no to asset finance other options do exist.

The same can be said with invoice finance. The bank invoice finance arms are the most risk averse. As such, just because you have been told ‘no’ does not mean there is not a suitable facility out there for you. The independent invoice finance market can deal with most scenarios.

The commercial mortgage market is severely subdued and lacks alternatives outside the banks. Roughly 2 years ago a dozen or so lenders withdrew from the market literally overnight and that vacuum remains to be filled.

I think businesses need to be flexible in their approach to sourcing finance and maximise the security that sits within the business. That means seeking specialist forms of finance from specialised providers. If your bank can offer 80% against your debtors can an independent specialist invoice discounting provider offer more? The same applies to asset finance and commercial mortgages – shop around and maximise the amount of finance you can generate.

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