Factoring Partners blog, EU Referendum special! 10th June 2016
With less than two weeks to go and the referendum debate now affecting business decision making processes I may as well stick my view in, to go with the 60 or so million others.
As a starting point its always sensible, in whatever decision making process being embarked upon, to seek advice from serious people and this decision is no different.
Prime Ministers (present & past), European leaders, and The President of The United States all support our continued membership of the EU. Outside Politics, and by inference, The Governor of The Bank of England and the head of The World Trade Organisation support staying in. There are significant UK business people also advocating remaining a part of Europe. Collectively this is heavyweight opinion.
To exit the EU we are expected to take opinion from Boris Johnson, Michael Gove, George Galloway & Nigel Farage among others from the world of politics. There are serious business people suggesting leave such as Lord Bamford (JCB) and the leave campaign are also keen to use celebrities like Sir Ian Botham & Edward Fox.
If no other method is used in gauging how to vote, the weight attached to those supporting the remain campaign is seriously mismatched against those seeking an exit.
My own work and business experiences are as nothing compared to the international knowledge all of the above possess but I have 30 or so years of working with UK based businesses in a finance raising capacity. This involves getting closely acquainted with a business, their hopes and aspirations, as well as their selling and buying markets.
All these experiences lead me to the firm belief that we are significantly and materially better being a part of Europe than not. Economically its a straightforward decision. There are emotional factors, the leave campaign keep repeating, which have an impact obviously but which we would be better able to address and contribute to as a part of Europe.
Another shortened week and with it being half term too, not the busiest of weeks, but one notable success with a prospect that had been sitting in the ‘active enquiry’ data field for nearly a year, finally crossing the finishing line and becoming a client. As detailed in a previous blog tenacity as a characteristic in sales people is critical, never more aptly demonstrated through the conclusion of this particular facility.
Elsewhere a couple of business surveys suggest between one fifth and one sixth of all small businesses have been rejected for finance during the last 12 months. The surveys also highlight the current move away from traditional finance to the ‘alternative’ funding tools now readily available.
I’m profoundly sceptical of surveys, particularly those that dont display sample sizes readily.
Nevertheless, this may coincide with recent figures suggesting the Government’s Funding for Lending (FLS) scheme, launched in 2012 failed to significantly boost lending in the first quarter of 2016. Interesting to note that over half (55%) of aggregate outstanding FLS drawings were via Lloyds, making them the biggest single user of the scheme, by some margin.
I have found, in the last couple of weeks, decision deferment mechanisms kicking in as the referendum looms large. By this I mean businesses not taking decisions, concerned over the outcome. Short term I dont expect a great deal of difference in economic circumstances, as they affect SME’s in the UK. What is predicted is some blood letting within the Conservative Party which should prove entertaining to watch!
An interesting week to compare two businesses with whom we are speaking with both discussing existing & potential finance.
Both are distribution businesses but in completely different sectors.
The first has an existing invoice finance facility and pays less than 2% above Base Rate (0.5%) for the finance and a commission charge equating to around £1000 per quarter. The business is well run, historically profitable with, in invoice finance terms, a strong, clean customer base. Access to finance is not an issue with assorted invoice financiers falling over themselves to offer facilities, a fact reflected in the rates enjoyed.
The second has an existing invoice finance facility and is managed by a serial and self-styled ‘entrepreneur’ with a catalogue of failed businesses in the background. Interestingly, this business is making a lot of noise about lack of access to finance and ‘relationship issues’ with the existing invoice financier.
A quick look at publicly available information reveals the background and the deductive powers of Sherlock Holmes are not needed to establish a pattern. The business is a viable one in that the products distributed do sell but the manner in which the current and previous businesses have been managed is where the issues arise
Not surprisingly at the same pace financiers are rushing to support the first business mentioned they are rushing to get away from the second. What is demonstrated here is that the character of the people behind the business is as vital and probably more so than any operational issue.
The Factoring Partners adword experiment continues. Since the 1st May the Factoring Partners advert has appeared on 3929 times when specific words have been searched. On 16 occasions searchers have clicked on my advertisement to land on the website. A number of enquiries have resulted (and those familiar with the world of corporate finance will be aware of their use of that expression and the inclusion of zero as a number!)
The week has seen a fair bit of coverage for the peer to peer (P2P) lending market, as it affects businesses. The various P2P funders provide real alternatives to businesses whilst also offering investors the chance to earn higher returns than available from conventional deposit taking sources.
The spotlight has fallen this week on the UK P2P market following what may euphamistically be called ‘issues’ at the US’s largest P2P funder, LendingClub. The UK market has been quick to respond citing a different, although not complete, regulatory environment in which they work.
The Alternative Finance Data provider (www.altfi.com) shows spectacular growth since 2006 when P2P lending was zero to now when the figure exceeds £6.8 billion. The size of the market is such that any issues that affect the market must be taken seriously. (Its also interesting to realise that the overall figure represents over £6.8bn of funding not provided by traditional lenders.)
Growth in P2P funding very much reflects a low Base Rate environment and if and when rates rise the impact on this market will be interesting.
Back in February the P2P market attracted the following comment from former City regulator Adair Turner, “the losses which will emerge from peer-to-peer lending over the next five to 10 years will make the worst bankers look like lending geniuses”.
Only time will tell whether this hugely experienced and respected individual is proved to be right but care must be taken when looking at P2P, whether as a borrower or as an investor. With regard to the latter I have seen one P2P business quoting possible returns in excess of 15% and the phrase ‘if it sounds too good to be true etc etc’ comes to mind. If in doubt, seek independent, experienced, advice.
And so onto the highlight of the week, 5.30pm tomorrow, revenge for 1990.
This weeks blog is brought to you from Barcelona so the week is again shortened. Having said that the Barcelona trip involves an invoice finance client so the topic of business finance will undoubtedly be discussed.
Away from Spain the highlight of the week has been the tenacity demonstrated by an invoice finance representative who has battled, against many obstacles, to push a deal for a client over the finishing line. I have a feeling a number of people may have walked away from the deal.
In being an invoice finance broker for 20 years I have spoken to many sales representatives across all sizes of invoice financier. A key characteristic that marks the successful ones out is tenacity. Assuming all have the ability to grasp the fundamentals of invoice finance (and that is by no means a given, based on some of the ones I have met over the last 20 years) it is those who display a terrier like tenacity in holding onto a deal that meet success.
The experiment with adwords continues and the number of searches remains a surprise, click throughs to the Factoring Partners site are not, as they say in cricket, troubling the scorer – much.
A week with two trips to Birmingham and a Bank Holiday means Friday has come round quicker than expected.
This week has seen Factoring Partners first attempt to crack the world of adwords on internet search engines and we await a flood of enquiries. Since the 1st May (up to today, 6th May 2016) my ad has appeared on the first page when the word ‘factoring’ has been searched 554 times. I have had a grand total of 5 clicks on the ad.
Its early days in the campaign so we will see how it unfolds and I’m confident my DIY approach to web advertising is far from perfect, All I’ve learnt so far is that search engines must be extraordinary cash generating machines.
Two trips to the second city to hear from two bank subsidiaries and their invoice finance offerings. There can often be a large gap between what the banks say and what they actually do and this has been highlighted this week with a personal experience at the hands of one of the UK’s major banking groups.
It’s been very easy to bash the banks over the last 10 years or so and its difficult and largely inappropriate to label a sizeable, mainly functional, organisation, inadequate on the back of a single experience, but that’s the way recent dealings leave me.
Within the invoice finance world the vast majority of clients use their bank for whichever format of invoice finance adopted and I suspect many enter into agreements without ever considering the independent alternatives.
The banks do not always present the best option to their customers so its imperative prospective users of invoice finance clients talk to alternatives. If nothing else it serves to benchmark the bank offering against the market as a whole.
As independent brokers we serve both the banks (to whom we have referred work) and the independent sector.
This week saw administration for two household retail names, Austin Reed and BHS representing another change to the appearance of High Streets across the UK. As ever the knock on effect of the outcome is likely to be profound with damage to suppliers and their owners and staff. With BHS its estimated around 1000 suppliers are owed circa £52m
The High St has been going through structural change since the arrival of the internet and further disappearances of household names are likely. In both cases, BHS & Austin Reed, possible buyers will cherry pick sites with the balance closing altogether.
Suppliers to both will be hit one way or another not just with potential bad debts but also the loss of future turnover. Its another episode that highlights the need for businesses to consider credit insurance and with further likely casualties there’s even more reason to at least think about this type of protection.
Businesses insure all manner or assets but all too often the sales ledger is ignored which is odd given the value within and the impact losses can have. Average premiums will be around 0.5% although the final figure is subject to a full risk evaluation, and given the ramifications of one, or a series, of bad debts this sort of rate is reasonable.
I dont think anyone knows what the future holds for the High St as we have known it, but suppliers to retailers need to ensure they carefully monitor their retail customers, keeping a close eye on changes to payment timescales and behaviour. Credit insurance needs to be considered and look out for insurers pulling limits or cover on businesses. They micro monitor some businesses so if limits or cover is withdrawn, beware!
It’s not easy being a supplier to retailers – suppliers to the supermarkets are faced with the supermarkets ever worsening attitude and policies with regard payments and suppliers to other High St retailers face risks as highlighted by the demise of BHS, Austin Reed, Woolworths, Adams, Jessops, etc, etc…………………………………
As a Stratford upon Avon based business it would clearly be appropriate this week to write the blog in the style of William Shakespeare, given all the celebrations taking place both locally and nationally this week end.
Alas, and that’s about as far as that attempt goes, Shakespeare aside, the week has seen more entrants to the business finance market, or at least I have found three new alternatives to add to the database of financiers. One is a specialist trade financier the other a Peer to Peer (P2P) lender using the debtor as the cornerstone of its security and the other a pure invoice financier.
The database is beginning to struggle under the weight of all options now available and keeping on top of credit and underwriting policies will be challenging. To a business seeking funds the opportunities have never been more extensive but the overwhelming number of alternatives presents a confusing picture.
Some funders will not survive either through an inability to write new business and others will fall victim of customer bad debts or even fraud. As the number of funders increase pressure will mount on all staff to acquire new business and costs will be reduced and corners will be cut.
This may well cause issues with borrowers conceivably caught up in the aftermath of their funder failing and the irony would be if one of the banks has to effect a rescue of any sort.
Maybe Shakespeare had a point when he said ‘neither a borrower or lender be’ today he probably would have added something like…but if you have to raise finance for your business always speak to an independent broker first.
Whilst this week has not exactly been overrun with enquiries those that have appeared have been in sectors not traditionally associated or liked by the invoice finance market.
Not too many years ago businesses that sold to other businesses were restricted within invoice finance by providers ignoring certain sectors that were perceived to be of a higher risk. Construction was an obvious one and then individual financiers had an idiosyncratic approach that sometimes precluded sectors favoured by others. By way of an example, one bank would not consider, for invoice finance, any business within the watch market.
Now, both with an increase in the number of funders and a more commercial and innovative approach to risk, invoice factoring businesses will consider virtually all categories of business. Domestic or export makes no difference and the nature of the debt created will be explored fully to find a way to raise finance.
But, and its a big but, not all financiers are the same and whilst many will say they will do something the reality can be very different. This is exactly where an independent broker can assist. With 30 years industry experience and nearly 20 years broking we do know which invoice financiers deliver on promises and which ones dont
Away from work there has been more coverage this week of businesses turning away Guide Dog owners because their dog was not welcome. This is against the law and undermines a Guide Dog owners confidence in a profound way. If you have a minute to spare the Guide Dogs for the Blind would like as many people as possible to sign their petition, www.guidedogs.org.uk/AccessPetition
Whilst this blog goes under the title of an invoice factoring blog most of this week, it seems, has been spent on a property development issue which has made me realise why I prefer the far shorter lead times associated with invoice finance.
One invoice finance issue that has cropped up this week centres on a business that supplies Tata Steel. About 90% or so of the businesses sales go to Tata so the implications are significant. If the business loses its sales to Tata then the business will fail, bringing home the reality of the fate of an organisation the size of Tata
Finding a buyer for Tata in South Wales will not be easy and the chances of any bought business resembling the sold business in 6 months time are remote. Its a fair assumption that Tata wont look back on their purchase of Corus in 2006 with any contentment as its unlikely they will recoup the in excess of £4bn paid.
The wider implications for the 4000 or so Port Talbot workers and then suppliers, such as the business referred to earlier, are profoundly serious with a very damaging setback to an already fragile local economy likely. Sadly the sale process will undoubtedly be clouded and possibly undermined by ill judged comments from politicians, both local & national.
Back to the invoice finance world and another entrant to the single invoice/debtor finance market launching today
Independent commercial finance broker. Working with businesses since 1996.