Interest Rates

image2History’s uncanny knack of repeating itself may well be tested with interest rates as the UK economy growth pattern continues. Its extremely unlikely we will see, at least in the foreseeable future, the kind of rates as seen in the late 1980’s. (From July 1988 to May 1992 Base Rate never went under 10%)

There’s pressure on the Bank of England to increase, little by little, rates;  not least because significant numbers of pensioners, savers and the like are seeing their savings eroded by the negligible returns on offer.

It could be argued the rate reduction to the current 0.5% (effective since early 2009) has done its job in increasing liquidity and giving borrowers some headroom.

Businesses have become used to low rates so increases will be poorly received but given the seeming inevitability of a rise its important businesses calculate the likely impact a rise in rates may have. No return to teen rates is expected but businesses should start looking at possible 0.5%/0.25% rises in their borrowing costs.

Invoice Discounting

At its heart Invoice Discounting contains the basic characteristic of Factoring in that it’s the sale and purchase of a businesses accounts receivable at a discount. The core aspect that stands invoice discounting apart from factoring is that invoice discounting is usually a confidential agreement. Under the terms of a traditional Factoring facility all invoices raised carry a stamp disclosing a businesses use of the facility, with Invoice Discounting there’s no such disclosure.

As with Factoring a very simple calculation can be performed by taking a businesses sales ledger balance (business customers only) and working out 80% of this figure.

This is how much money may be available instantly so if it’s a materially larger figure than the business receives by way of an overdraft then there may be benefit in exploring further.

As can be expected from a business funding tool there are hoops to go through with lenders before the benefits of the facility can be realised.

Just Factoring is a specialist, independent and importantly, experienced brokerage that helps businesses through the often complex process.

Factoring Companies

With the growing popularity of Factoring and Factoring type facilities has come a sharp rise in the number of companies providing such facilities. What was once almost the sole preserve of the UK Banks is now crowded with all manner of providers from the banks themselves through to small, independent providers sometimes operating on a regional basis.

There are privately owned providers, venture capital owned, taxpayer owned, American owned, French owned and so on and just about all the providers have merit in their offerings.

They all have their likes and dislikes and some will enter into sectors such as construction where others fear to tread. Different pricing policies mean that the same business, talking to three different companies will get three different price offerings.

Recent developments include the provision of single invoice factoring, historically not offered in favour of whole turnover agreements. Likewise the arrival of a web based auction system through which businesses can have investors bid to buy invoices is an innovative and potentially exciting new product.

Overall there are a lot of variations on the general factoring theme so finding the right one for your business can be a time consuming and not always rewarding exercise.

Just Factoring is a specialist, independent and importantly, experienced brokerage that knows the factoring companies.

Factoring Brokers

As Factoring has developed so has a broker market offering advisory and introductory services. A broker should obviously know the market, the providers and be able to explain, without the use of industry jargon, how a facility works and what costs, benefits and pitfalls may be encountered.

By using a broker a business should expect completely impartial advice. Brokers are paid by lenders on a success basis so any broker attempting to take a fee direct from a business should be avoided.

Very often a business will secure a more competitive rate by using a broker in preference to going direct to a lender. Likewise a good broker will know to which provider a prospective user should turn. All Factoring Companies have different criteria as well as varying likes and dislikes with regard to industry sectors.

It’s difficult to know to which broker a business should turn. Web based ones used automated costings to provide indicative prices but at best these are only going to be a rough guide and at worst misleading. No two businesses are the same so they all have differing costings.

Experience is vital, the market changes frequently so a broker with a detailed knowledge will have an in depth insight.

Independence is also important, ideally the broker should not be advising a business with an interest elsewhere, either through being owned by a factoring company or professional services firm.

Just Factoring is a specialist, independent and importantly, experienced brokerage that helps businesses through the often complex process.

Invoice Finance Interest Rates

Interesting to compare the cost of money today, as compared to the past. The Bank of England’s Monetary Policy Committee today held Base rate at 0.5% – and it’s been that rate since the 5th March 2009. In January 2001 it was 6% and in January 1991 a hefty 13.875%. Money is cheap in comparison, assuming the bank will lend it to you, but businesses need to watch for the little tricks some lenders apply by way of minimum base rates.

Invoice Finance Guarantees

Most Factoring companies will ask for your Guarantee to back up the agreement, but there are marked differences in the type of guarantee so it really is worth checking the small print. Guarantees are also described as warranties or indemnities and in some, albeit rare, cases the factoring company will ask for a supported guarantee which involves them taking a charge over your home. To fully understand the possible implications of giving a guarantee legal advice is recommended. Given the fact there are levels of guarantee it may be worth shopping around.

Changing Factoring Company – Is It Easy?

We talk to a lot of businesses trying to change their factoring company. It ought to be a straightforward process but there are obstacles to look out for and to bear in mind. It does happen frequently and there could be big savings to be had in moving.

  • Do check the terms and conditions that govern your existing arrangement. One issue is cost and it’s really important to check termination periods. Your agreement will be for a certain period and trying to exit early can result in penalties being charged.
  • If there is a specific reason for leaving make sure that reason is known to the incoming factoring company. For example if you are not getting as much money as you had been led to believe from your current lender be certain the new factoring company will provide the extra funds.
  • The independent factoring broker has a critical role to play here. A business fundamentally happy with its existing provider probably has little to gain from switching and the brokers position should reflect this. If the reason for change is valid then a good, independent broker can and will help.