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We have often been approached by businesses that work in the IT sector who raise invoices in advance for maintenance contracts or in stages for large projects.

Unfortunately lenders have always been wary of funding such businesses as it was felt that invoices would not be paid by customers in the event of business failure.

We are happy to announce that we have access to a new product targeting the IT sector.

Whatever your function within the IT sector, if you are looking for finance get in touch with Smart Factoring today.

Invoice Finance Broker or Accountant?

When a business owner is looking for impartial advice about invoice factoring should they be asking their accountant or an invoice finance broker?

This relies heavily on the quality and integrity of the parties you are speaking with. In terms of this post I will be making generalisations and will also try to be impartial – I am an invoice finance broker afterall.

Accountants are in a position of trust with their clients. They are well educated and have a good general understanding of accounting procedures and business. Some are mere ‘bean counters’ whereas some are more integral to businesses and offer proactive business advice and planning. In comparison an invoice finance broker is a specialist in the invoice finance industry. All day every day they are looking at different scenarios and the objectives of different business owners with a view to meeting their needs. On that basis I think that a reputable invoice finance broker offers a more specialised and focused service. As such their analysis can be more in depth and their industry contacts should typically be wider than those of an accountant.

Impartiality is an important factor – excuse the pun! An invoice finance broker works for commission so there is a chance they will look to maximise their commission. That said the commissions paid by lenders are fairly standard across the industry. It is also unlikely an invoice finance broker would say ‘You don’t need factoring’. An accountant on the other hand should be totally impartial as they shouldn’t accept the commissions offered by lenders. That is not the case though. I know a multitude of lenders that pay commissions to accountants. Some of them take the commissions and offset them against thye clients fees which is admirable but that is not always the case. As an invoice finance broker I actually share commissions with some accountants so I know where their motivations lie. That said if they are offering advice and helping structure a facility then should they not be entitled to the same commission as an invoice finance broker? I personally have no issue with it but in terms of a comparison it is important to see in many instances the motivations are very similar.

Invoice finance has so many options in terms of providers, facilities and variables I personally feel that expert advice from a reputable broker is invaluable. But the comfort that your accountant gives you because of the trust within the relationship is also invaluable.

On that basis perhaps it is best to use an invoice finance broker to establish your options and importantly the pros and cons of each. Then use your accountant to check the findings and help you decide what is best for your business.

Ultimate Finance the AIM listed independent provider of invoice finance have developed new capabilities. They have added asset finance and trade finance to their portfolio of products.

The asset finance will allow Ultimate to help clients who are looking for additional finance against plant and machinery and other movable and durable assets.

Trade finance will benefit importers who can benefit from both the protection and cashflow advantages a letter of credit offers.

I am not sure that either products will be available as a stand alone product but suspect they will be offered in conjunction with their core invoice finance offering. It will alow them to raise more finance in some instances than their competitors and this can benefit clients.

It is always good to see lenders developing new capabilities as it enhances the market.

As a lender Ultimate have grown rapidly in recent years and their financial performance has improved recently – their share price have mirrored this. Despite a high turnover of sales staff they do seem to have stability in terms of their operations staff. In terms of client feedback it is generally good although I have encountered regional variances. These regional variances are being addressed from what I can see.

I will be interested to see how these new products are delivered both in terms of pricing and service levels and at the same time wish them luck.

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.

I recently met Philip Padgham on a corporate day with a firm of accountants. Various people were singing his praises and a contact of mine asked if I would try using his invoice finance company Partnership Finance.

I had a chat with Phil who explained that as a finance company they were fast moving and decisive. They also claim to offer an excellent level of service. Yes, I had heard it all before but as it happened I had a client who had been let down at the last minute by Absolute Finance. (Strangly Absolute Finance had taken 2 months to decline a deal based on information they had been aware of on day 1.)

Anyway, I presented the opportunity to Phil and he visited them the very next day which was a friday. They then surveyed the deal on the Monday and approved the deal by credit committee on the Wednesday. The client is delighted. I am impressed. From first visit, through to survey and then on to formal approval by credit committee in 4 working days is fantastic.

A big ‘thumbs up’ for Phil Padgham and his colleagues at Partnership Finance.

The International Accounting Standards Board (IASB) have proposed changes that could mean that asset finance could be more difficult to obtain. The Finance and Leasing Association (FLA) advised this could impact heavily on the economies recovery as it relies heavily on investment in capital equipment. 

Read Full Article

Aldermore Invoice Finance was announced today as the new name for Absolute Invoice Finance that was previously Cattles Invoice Finance. While not a new invoice factoring company it is now part of a bank which can offer asset finance and commercial mortgages.

Aldermore Bank is described as ‘the new British bank’ and was formed by the merger of Ruffler Bank Plc and Base Commercial Mortgages. It is wholly owned by a private equity firm AnaCap Financial Partners Plc and it targeting savers by offering attractive rates and SME’s through asset backed lending.

Personally I have never been sure about Cattles and more recently Absolute Invoice Finance mainly due to pricing, credit appetite and having been let down a few times recently. They are assuring everyone of the same level of service so I am not sure that is a good thing.

That said, alongside invoice factoring and invoice discounting they have asset finance capabilities and offer both residential and commercial mortgages and may be the best lender for some clients. They can certainly look at more asset classes than most of the independent invoice finance providers. They are also claiming to be very liquid and open for business so it will be interesting to see how things progress.

I wish them well and hope that things do improve. It is always good to see lenders develop new capabilities and bring new offering to SME’s.

If you are looking for an invoice finance facility and want to know what options are available to you contact Smart Factoring Quotes today.

Invoice factoring is a type of working capital facility used by over 42,000 businesses in the UK according to the Asset Based Finance Association (ABFA). For the vast majority it is a valuable source of working capital that helps smooth their cashflow. However, I do hear the odd horror story and as such thought that I should talk about some of the pitfalls that can occur and how best to avoid them or deal with them.

Invoice factoring companies have to limit their risk so that they do not lose money and as such only certain types of debt are suitable for factoring. They also set certain parameters for the facility that are monitored on an ongoing basis. Importantly most , not all, factoring comanies will sign clients up for a 12 month contract period.

So let’s have a look at some of the more common pitfalls or complaints from clients.

Turnover has dropped and as such the factoring minimum fees are coming into effect and proving expensive. It is important you have a grip on what your turnover will be but I accept that crystal balls are hard to come by. Turnover is a major variable when calculating fees and typically the larger the turnover the lower the percentage service fee paid. To prevent a business forecasting a £10m turnover and the associated pricing but actually producing a turnover of £300,000 the invoice factoring company will implement a minimum fee. Unfortunately if a business loses a major customer or the market moves against them turnover can drop dramatically and the minimum fees can prove expensive. In this instance it may be possible to renegotiate with the lender for an increased percentage service fee but lower minimum fees based on the new turnover levels. In essence you are asking them to reprice based on the new variables of the business.

Concentration limits are proving restrictive – one of the parameters I mentioned above is a concentration limit. This is the percentage of your ledger that is outstanding from a single debtor. Some lenders restrict this to 20% while others are perfectly happy to provide funding against a single debtor. It is imperative that this is understood from the outset. Obviously your ledger can change over time so it is important to flag any issues in to your factoring company early on. Unfortunately they are not always accomodating. I recently experienced an issue with Venture Finance where a scaffolding client of mine won a large contract and anticipated a concentration issue for the coming months. He approached Venture Finance who took over 3 months for any kind of a response. As a result my client has tendered his termination.

Debtor Limits are Restrictive – it is important to remember that invoice factoring companies want to lend money but they have to assess the credit worthiness of your customers and set credit limits accordingly. If you have an order from a customer who is not credit worthy it may be tempting to deal with them. However, the advice offered by your factoring company may well limit your risk of bad debts. These limits can of course change over time and as a result credit limits can be reduced in some instances. This can mean that by dealing with some customers you are not receiving the funding that you may have expected. It is important to look at the credit limit of any customer prior to accepting an order. It is also important to have a lender that responds quickly to credit limit requests.

Early termination fees – I hear a lot of complaints about early termination fees and I have to say in some instances I do see excessive ones. Lenders will typically look to recover the fees they would have earned until the end of your contract and as such these can be hefty! The key is to set up a facility that works from the outset. Do your research, understand the fees and how the factoring facility operates. If you are looking to leave because the facility doesn’t work there may be room for negotiation but if you are looking to move to an alternative provider for reduced fees it is unlikely to be viable.

Collect Out Fees – in the event of business failure a lender will collect out what they are owed from your customer base. They will do this as quickly as they can to minimise the risk of bad debt and this is good for business owners as they will usually be supporting by way of a personal guarantee. The lender will levy a charge for this and it is usually a percentage of the ledger value. This can be a substantial sum as high as 15-20%. I have seen some lenders charge this fee even when they had no money advanced to the business at all. In part this fee can be justified but is often excessive in my opinion. However, it will have little impact on the directors or owners in most instances as it simply reduces the amount available to creditors. It rarely impacts on the business owners pocket. This does not make it right and the impact should always be considered.

As other pitfalls crop up I will add to this post.

The key is to arrange a facility properly from the outset and understand what parameters/conditions are in place and why. Understand how they can impact on the funds generated and on your business.

As an invoice finance broker I am always available to answer questions and assist where possible.

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