Sunday Papers – Bad Advice?

I was reading an article in the sunday papers about an undercover journalist who had approached the high street banks with a business plan. He was requesting a £3,000 overdraft facility for a retail jewellery business.

His complaint was that all the lenders had declined the overdraft but some had offered a credit card with a £3,000 limit. He did however advise that Lloyds TSB had asked him to consider an invoice finance facility.

This is clearly inappropriate as he has a retail business selling on a cash basis to the general public.

Unfortunately, this highlights a common issue. The front line staff in many banks are not particularly well educated or well trained. However, they are targeted to sell products they simply do not understand.

Business owners can end up with facilities they do not really want or poorly structured facilities that are not fit for purpose.

Unfortunately, this can give the industry a bad name.

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Why do lenders have a minimum contract period?

Well to be honest not all lenders do. The standard however does seem to be a 12 month contract with either a 3 or 6 month notice period. However, some lenders offer a 28 rolling contract and I have seen some clients sign up for a 4 year contract (not under my advice I may add!)

So why do lenders insist on a minimum contract period?

If you look at the process of setting up an invoice finance facility I am sure you can appreciate that the costs are front loaded. The costs relate to the workload of the lender. They have a sales person that will visit you and then write up a report supporting your application. They have an underwriter who will review the report and make recommendations. A surveyor will visit you and write a detailed report about your business. The sales person will review this and update their report accordingly. The underwiter will provide the final sanction. Their is the the administration involved in actually getting you set up as a client.

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With all these costs being front loaded if you were a client for only a few months the lender would lose money. Their contract periods are in a way justified.

However, if they are charging you a survey fee and an arrangement fee this argument is somewhat weakened.

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Minimum Base Rates – Do you know what you are paying?

Minimum base rates can mean you are paying more than you expect and more than you need to…

When speaking to new clients and reviewing their existing facilities it is quite common for them not to be aware of the minimum base rate that is included in their agreement.

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If you have been with a lender for some time it may shock you to learn you may not be benefiting from the low Bank of England base rate.

Some lenders have minimum base rates in the agreement as high as 8%.

It is worth reviewing your facility to ensure you have got both the best structure and also the most competitive pricing available.

 

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Supermarket Payment Terms

Whenever I see a client who is supplying supermarkets I always whince at the time it takes them to get paid and also the terms and conditions suppliers have to agree to.

In April 2008 the competitions board confirmed that supermarkets use their buying power to pass on excessive risk and unexpected costs to their suppliers. “Good news for small business” you may think. But what has been done about it?

Initially it was recommended that an ombudsman was set up with the power to impose financial penalties against retailers who fail to comply.

Unfortunately 3 and a half years later this has still not been set up.

The frustrations will no doubt continue as small businesses are forced to feel the pinch. However, at Smart Factoring Quotes we are happy to help source the right financial solution for your business to ensure that cash flow can cope with the payment terms. We also aim to minimise costs so that your profits are maximised.

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Latest client – A security company – 25% reduction in fees

Our latest client is a security company operating on the south coast of England. They supply staff to hotels, restaurants, bars and clubs.

We have managed to reduce their costs by 25%. At the same time we have increased their prepayment by 10%.

 

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BofE base rate kept at 0.5% – are you benefiting?

The Bank of England base rate will remain at 0.5%.

It is publicised that this is good news for borrowers but bad news for savers.

If you are an invoice finance client there is a good chance you are operating with a minimum base rate which is preventing you from benefiting from the current low base rate.

Is it time for a review?

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Beware indicative terms

We often speak to clients who say they have an “offer” from another lender.

Typically this is nothing more than indicative terms and really should not be relied upon.

Most lenders will follow the following process:

  • Initial meeting
  • Follow up with indicative terms
  • If you accept they will submit to their credit team for a decision (this is the first hurdle where things can fall down)
  • They will then offer an offer subject to survey
  • If you accept they will conduct an onsite survey/due dilligence
  • This survey is submitted to the credit team (this is the second hurdle where things can fall down)
  • From here they will issue legal documentation
  • Even then things can fall over when they conduct searches or when they do an inter factor reference if you are transferring from another lender

It is important to understand what constitutes an offer and what you should and should not rely on.

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Overdraft or Invoice Finance

I am often asked whether an invoice finance facility is cheaper than an overdraft facility. In short the answer is ‘no’.

An invoice finance facility is typically more expensive than an overdraft facility. This is because of the workload involved in administering an invoice finance facility.

However, it is worth considering the following points?

  1. Is an overdraft a genuine option? Is your bank willing to offer you an overdraft facility? If not then it is not worth trying to compare the cost as it is not a genuine option.
  2. What security do they require in order to offer you the overdraft? Do they want to secure the facility on your family home?
  3. Will the overdraft facility be flexible enough to support your growth plans? As your turnover grows so will your requirement for working capital. While an overdraft facility is static an invoice finance facility will grow as your sales grow.

If you have been offered an overdraft facility and you are happy with the security requirements and the size of the facility then it may well be your best option.

If as I suspect this is not the case it is important to explore your invoice finance options properly.

At Smart Factoring Quotes our aim is to help you make an informed decision. We explain in full your options so you can decide what is best for your business.

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All the best for the festive season

The Smart factoring Quotes team would like to wish everyone all the best for the festive season.

It has been a challenging year for many businesses that we have spoken with. Hopefully 2012 will bring easier times.

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For now we wish you happy times with your loved ones.

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Good luck in 2012

As 2011 draws to an end we wanted to wish everyone all the best for the New Year.

2011 proved to be another challenging year in difficult economic times. A lot of SME’s still feel let down by our banks and the government.

At Smart Factoring Quotes 2011 was a good year and we were delighted to have helped a record number of businesses secure much needed working capital facilities.

We look forward to working with you in 2012. We hope it is a good year for everyone.

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