Invoice Factoring Blog

I have been reading a number of articles recently talking about “the new normal” as it applies to the financial world and the effects it will have.

What is it? Well for most it seems to be about less leverage and more regulation. For providers of funding that means a reduced ability to fund deals and that risk is priced more highly.

The natural take-away from that, if economies are not contracting (which is a bit of a moot point right now across not just the eurozone) is that if there are less funds available to fund businesses from traditional sources then alternative sources will enter the market to plug this shortfall.

I think we are seeing this in cashflow funding. Overdraft has become less available so invoice factoring grows. Traditional invoice financiers themselves are under stress so alternative solutions such as spot factoring or selective invoice finance are coming to the fore. Even the pawnbrokers are providing funding to the corporate market.

So the new normal is new opportunity for those of us in the alternative funding space.

HSBC this week announced that they had met their Merlin commitments for 2011 and were making further commitments for the coming year. Positive and to be applauded but  what I think we all know is that there is a degree of selectivity/spin or whatever else you want to describe it in new lending figures from any of the banks.

What I would like to know is how much of this is genuinely new money and how much of it is one bank just replacing another so the net affect for UK SME is nil. I suspect there would be an embarrassingly large percentage that fell in to this category!

In the invoice financing world we can not be too smug as there is still a goodly portion of factoring companies who are chasing the easy £ through switching and are not genuinely getting out there and evangelising the benefits of factoring.

So, as its now February perhaps it is time for a meaningful resolution for 2012. Double your sign ups of clients new to factoring!

Did anybody else see the release from Experian last week? They reported that in Q4 2011 the payment performance of UK firms saw a small improvement from 26.17 days in Q3 to 25.97 days, with the biggest improvements coming from the largest firms.

Not from where I’m sitting! Almost without exception anybody that I speak to tells tales of woe. Terms being extended, particularly by larger companies and often without any form of notice or discussion.

I suspect there is an inbuilt bias with those reporting their “experience” to Experian being those making payments and thus perhaps being slightly economical with the truth so as to garner the favourable headlines. And when you look at those figures it is less than 1/4 of a day’s improvement – thanks big business.

I would be interested to know what others think?

What is true is that factoring companies are reporting increased activity and  debt factoring or invoice financing is also becoming a more accepted mainstay of company finance. So while times will continue to be tough for the owner-managed business there options available.

A piece in Commercial Finance Today by a a contact of mine, Glenn Blackman of Cashflow Acceleration gives another take on yesterday’s comments about switching. This time it is about switching SME’s from overdraft to invoice financing. Glenn has 88% of businesses using overdraft but only something like 1% (personally I think this too low) using debt factoring. According to a sample of 100 SME’s recently surveyed the reason is -

• 41% said overdrafts are ubiquitous and available for new account holders
• 24% said overdraft is the norm and businesses probably haven’t heard of invoice finance
• 24% said banks offer overdraft as standard
• 8% said invoice finance is far more expensive than overdraft
• 3% said overdraft is standard, invoice finance is specialist

The interesting take out from this is the 24% who haven’t heard of invoice financing.

Further research, with the same group of SME’s, asked what would make them switch from overdraft to factoring. The result -

• 68% said invoice finance being cheaper
• 22% said increased funding

The conclusion from this is that the invoice financing market has a great opportunity but needs to firstly raise awareness of what factoring is and how it works. Then its about sellig the benefits of increased funding and reduced cost; namely the greater level of funding that invoice factoring can deliver versus overdraft and how innovative and new ways of delivering it can reduce cost.

Sounds like a job for selective invoice finance from The Interface Financial Group!

Reported in The Times on Saturday, a Bank of England survey that business lending was down 2.1% y-o-y in November. Rather puts a lie to the ever continuing assurances from the banking sector that they are lending ever more!

It comes as no surprise and one feels that it is unlikely to change any time soon. As we continue to impress on everybody it is alternative sources of finance that will provide what our SME’s require, rapid access to flexible cashflow funding.

Debt factoring or invoice factoring is the was to go and we can expect factoring companies to take up the slack.

There is much being written about Crowdfunding as a new source of finance for SME’s. This can also be described as peer-to-peer funding or disintermediation. It is not a new concept although the rise of the internet and social networks does allow for easier and more cost effective dissemination of opportunities.

Even the government is getting in on this, as ever, with Vince Cable announcing a task force to investigate. Can’t wait!

Is it a threat to those involved in the invoice factoring industry – I don’t think so. The reason I say this is that my belief is that the success of factoring companies is not just about their ability to sell invoice financing but credit assessment and due diligence process and skills.

As we are so often reminded, any idiot can lend money it is the skilled who manage to get it paid back! A fool and his money are easily parted and that I fear is the direction that crowdfunding, peer to peer networks and online exchanges that attract in the unwary and unskilled will go. They do not possess the credit and due-diligence skills to properly assess risk in transactions such as factoring  and will surely pay the price.