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General

Aldermore Invoice Finance is the 2nd incarnation of Cattles Invoice Finance. Initially they rebranded as Absolute Invoice Finance and now as the invoice finance arm of Aldermore Bank.

The most startling observation of Aldermore has to be the staff turnover. It is simply astonishing. In speaking with a previous managing director prior to the IPO we were told that the executive team were targeted on recruitment and on expanding the sales team in certain areas. This focus on expansion seemed to override the focus on looking after existing staff and they were leaving in droves. Good people from the invoice finance industry were joining and leaving very quickly. Some were even resigning without having jobs to go to.

Another worrying observation was the number of recruits they took from RBS Invoice Finance. A large proportion were from RBS and this was a team that had arguably caused some real issues there. The extent of the problems were somewhat overshadowed by the near collapse of the overall banking organisation but there were specific issues within the invoice finance arm that caused the then MD to lose his job despite his recent arrival.

Having had dealing with Aldermore Invoice Finance I would question their honesty and customer service. I have seen a client that they refused to assist with an increased funding request try to exit the relationship. The relationship manager involved was very aggressive and this resulted in a formal complaint to both Aldermore Invoice Finance and Aldermore Bank including their CEO Philip Monk. Astonishingly the individual involved was named on the formal complaint acknowledgement letter as the individual that would be investigating the complaint. Unsurprisingly he concluded his investigation and advised he had not found any wrong doing. The client wanted to leave to go to another lender that would provide unrestricted funding of their debtor book. Aldermore charged a hefty termination fee which goes against what is advised by the ABFA Code of Conduct. The ‘Guidance to the ABFA Code’ it states:

“3.2.3 Where a client requests termination of a facility without the required or any period of notice, even though Members may not have any legal obligation to agree, they are encouraged to give reasonable consideration to such request, particularly where continuation of the facility may cause hardship to the client.”

The relationship manager advised verbally that he did not care about the ABFA Code of Conduct and they would do as they pleased. This seems to be common practice and I have one client who was arguably forced out of business by Aldermore’s termination fees.

In terms of honesty I have personally had issues with senior members of the Aldermore team in terms of how they have handled enquiries. It would appear that honesty is optional.

There was a case of a large haulage company that was with HSBC and needed a new funder. There were several large players involved and all looked at supporting the business to some degree. However, the Aldermore offer was far more aggressive. One lender had been there doing due diligence for 3 days and was advised that Aldermore had only taken 1 day on their due dilligence. Aldermore funded the deal in January and almost immediately withheld funding. They were aggressive with the management team of the business and ultimately forced them to leave in March. Sadly, arguably due the restricted funding implemented by Aldermore, the business went into administration in the May.

I think you would need to question the competence of Aldermore.

One of the biggest issues Aldermore Invoice Finance has is defining what deals or transactions they can support. They don’t seem to command a particular position in the market. You could argue that they are not particularly good at anything and are more of a generalist. This seems to impact on their ability to win deals in the market and also on their ability to service clients once they are on board.

They also took on board a team from another lender that specialises in construction finance. One of the senior team members, who still works there, is a convicted shoplifter.

If you have a requirement for invoice finance it is safe to say there will be better options in the market than Aldermore. Do your research, look at reviews and take advice.

If you would like to share your experience with Aldermore please feel free to comment.

Are you paying more than you think for your borrowing?

With record low base rates borrowers should be benefitting. In many cases invoice finance clients are not. Some agreements have a minimum base rate or minimum discounting fee. This means that you could be paying more than you think for the money your borrow.

Close Brothers Invoice Finance Example:

The Bank of England base rate is currently 0.25%. We recently reviewed a facility for a Close Brothers Invoice Finance client whose agreement stated they were paying 2.50% over base rate. Sadly they had a minimum discounting fee of 4% in the agreement. This meant that the client had not benefitted from the record low base rates. Had they been paying 2.50% over bank base rate the discounting fee would have been 2.75% in total. The client was paying 4% so in effect 3.75% over base rate rather than the expected 2.50% over base rate.

We have recently put agreements in place where the discounting fee is 1.70% over bank base rate so in effect 1.95%. In comparison, the 4% fee from Close Brothers in the example above does look expensive.

If you have an invoice finance facility it is worth checking the smallprint to ensure you are not paying more than you think. If you would like a full review please contact Funding Solutions on 0845 251 4040. In recent reviews for clients we have reduced costs by 58% and removed frustrating restrictions.

 

 

 

Favell Recruitment are a family owned business started by brother and sister Oliver and Alicia Favell. They are a recruitment company based in South Yorkshire that specialise in the construction sector.

The business started trading in 2014 and to finance it’s rapid growth they entered into an invoice finance facility with Aldermore Bank Plc. They set this up on a the Aldermore ABC product which is a fixed price facility and they had an overall credit facility of £50,000. Sadly, the facility did not generate the required working capital but when they looked to terminate the agreement Aldermore levied early termination fees.

Problems

The facility had run satisfactorily but they soon outgrew the facility. In order to double the facility limit to £100,000 Aldermore doubled their fee structure to £900 per month plus an additional 0.65% of turnover for bad debt protection. The facility was also restrictive as there was a 50% concentration limit on the facility and their top customer could represent more than 50% of their sales ledger. This put pressure in Favell’s cash flow as the facility was not generating the required cash.

Favell Recruitment felt that the facility was both restrictive and expensive. As a result Oliver looked to source a better structured facility. A facility was sourced from another lender that provided an increased facility limit, increased prepayment, increased concentration limit, full funding limits on all their debtors and also provided considerable savings.

Cost Comparison

Lender                                                        Aldermore                                         New Lender
Facility Limit                                            £100,000                                            £200,000
Prepayment                                              85%                                                      90%
Concentration Limit                              50%                                                      100%
Service Fee                                              £900 flat fee                                       1%
Bad debt protection                               0.65% of gross turnover                  Included in service fee
Discounting Fee                                     Included in flat fee                            2.5% over bank base rate

In terms of costs, if we analyse the fees paid by Favell to Aldermore in December we can see that despite borrowing just over £7,000 at the end of December having notified just £23,164 of invoices the fees for the month were £1,230.16. Of this, £900 was fixed cost service fee which represents 3.88% of turnover and this did not include the bad debt protection.
If the new lenders facility had been in place the costs would have been circa £450. This is a reduction of over 60% in costs. Due to the inflexible fixed fee arrangement and the low turnover in December due to the slowdown in the construction industry this may be somewhat skewed. However, the service fee element would have been just £231 compared to £900 and the additional bad debt protection.

If we assume a turnover of £700,000 and average borrowing of £75,000 the Aldermore facility would cost £16,260 versus the new facility of £10,650. Again a considerable saving of 35%.

Termination Penalties

Favell Recruitment approached Aldermore to advise that they wanted to leave. Sadly, despite the facility being restrictive and expensive Aldermore advised that there would be a termination fee.
Aldermore are members of the Asset Based Finance Association (ABFA) and on Aldermore’s own website they state that “as members of ABFA we take these commitments seriously and are dedicated to ensuring they are RESPECTED at all times.”

If you look at the ABFA Code of Conduct and more specifically the ‘Guidance to the ABFA Code’ it states:

“3.2.3 Where a client requests termination of a facility without the required or any period of notice, even though Members may not have any legal obligation to agree, they are encouraged to give reasonable consideration to such request, particularly where continuation of the facility may cause hardship to the client.”

There is obviously no legal requirement for Aldermore or any other ABFA member to allow a client to terminate a contract early. However, given that Aldermore could not fully fund Favell’s largest customer due to concentration restrictions, it could be interpreted that “continuation of the facility may cause hardship to the client” given that it was restricting profitable trading and growth with their largest customer.

Due to the restrictions on the facility and also what Oliver considered to be excessive fees, Favell Recruitment felt they had no option but to pay the termination fee to Aldermore to exit the facility.
Oliver Favell commented, “This is not a good way to do business especially after it appears they were overcharging us. We were paying a lot of money for a restrictive facility with a £100,000 limit and now we are paying considerably less for a £200,000 facility. All in all I would not recomend Aldermore to anyone ”

With a better structured and more cost effective working capital facility we wish Favell Recruitment continued growth and success.

Do you want to access invoice discounting but don’t want to provide a personal guarantee?

Invoice finance without a personal guarantee is available. You can contact Funding Solutions on 0845 251 4040

Many invoice finance providers insist upon a personal guarantee and others only insist upon a guarantee if you are factoring. This seems strange to me as the lenders risk associated with invoice discounting is higher than it is with factoring. However, the criteria for invoice discounting with these lenders if far more stringent so the personal guarantee is less important.

Why do lenders look for a personal guarantee?

A typical requirement for a personal guarantee will be between 10-25% of the overall funding line while some lenders will look for unlimited personal guarantees in the first instance.

The reason lenders look for a personal guarantee is to keep the directors interested in a failed situation. If a guarantor stands to lose money under a guarantee they will help the lender collect in outstanding debts. It may mean they need to dig out a proof of delivery or a signed timesheet to help resolve a dispute.

Are personal guarantees called upon?

Rarely are personal guarantees called upon. Invoice finance lenders are lending against outstanding invoices and their calculation of prepayment relates to what they feel they will be able to collect out in a failed situation. On that basis the outstanding debt is repaid by collecting out what is owed by customers. This can be a troublesome process so the directors or guarantors help is often vital and as already stressed the guarantee is there to keep them interested in assisting.

In fairness banks and other lenders are becoming far less reliant on personal guarantees than they used to. Mostly due to reputational risk, especially where the family home is the main asset underpinning a guarantee.

So do I have to provide a guarantee?

In short no. There are lenders available who will provide funding without a personal guarantee.

Shop around or use a reputable broker such as Funding Solutions.

Recently we were approached by a landscape gardener than needed assistance in raising some working capital. The family owned business has issues as they were working for the well known house builders. These clients would take a long time to pay and in the meantime they had to pay their workers weekly.

They had approached their own bank who were unable or unwilling to provide an overdraft facility. They referred them to their invoice finance arm who were unwilling to assist as the business was considered to be in the construction industry as they were required to submit applications for payment to the house builders like any other contractor. From there they had approached several independent invoice finance providers who were unwilling to help for the same reasons. The landscape gardener then approached us at Funding Solutions UK.

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Arrangement fees for factoring have crept into the industry in recent years. If you look back at historical comparisons between invoice factoring and overdrafts they would typically say that arrangement fees were payable on an overdraft facility and not on an invoice factoring facility. However, this is no longer the case. Some lenders charge an arrangement fee, a legal documentation fee and a ‘take-on’ fee. The take on fee is the service charge applied to the debts in existence when the facility commences. For example, if you have a debtor book of £500,000 and a service fee of 1% then the take on fee will be £5,000 on day one. Add to this the arrangement fee and legal documentation fee and the first day of your factoring facility is an expensive day at the office!!

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If you are looking to improve your business cash flow their are a few things that you can do and we will talk through these separately. In essence you are looking to speed up the flow of cash into the business while slowing down or eliminating the flow of cash out of the business. Let’s take a look at the different areas that can assist:

Credit control – if you are offering credit terms to your customers then it is important to ensure that you are paid on time. You have provided a good service or product and you are entitled to be paid. You have even been generous enough to offer credit terms so it is not asking a lot to be paid on time. Slow payers can have a real impact on the cash flow of your business. In reality if you are dealing with large organisations that have payment runs, etc.. it can be hard to dictate payment terms but you should still stay on top of it. Efficient credit control improves cash flow and importantly reduces the risk of bad debts.

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Invoice discounting has often been reserved for larger, well established businesses and smaller businesses have been forced to accept invoice factoring.

The good news is that invoice discounting can be accessed by smaller businesses.

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