Can asset finance lenders embrace cashflow finance quickly enough to take advantage of the ID boom? At Leaseurope’s annual convention in Prague in October, ex-ING Lease CEO Alain Vervaet posed the question: “Should the European leasing industry consider redeveloping itself as an asset-based finance industry?”

The question hit on a salient issue. It has since emerged that a number of leasing companies are adding factoring and invoice discounting (ID) to their portfolios. Those involved in this process, which will potentially add millions of euros to balance sheets, include GE Capital, Close Asset Finance, Crédit Agricole and Lloyds TSB Commercial Finance, as well as several smaller players.

GE Capital’s integration, just completed after a year-long process, brings fleet, contract hire, business lending, factoring and equipment finance under one roof. Earlier this year, CA Leasing and Eurofactor launched a similar joint project with the aim of increasing potential revenues and combining their support functions.

Moving the two units closer together makes a lot of sense – both CA Leasing and Eurofactor are profitable businesses that continue to grow despite the current downturn, and there is no doubt the two businesses have back-office functions in common which they could easily share.

Also, Close has just launched Close Commercial Finance (CCF) which brings together its leasing arm, Close Asset Finance, and the bank’s factoring business. Meanwhile, Lloyds TSB Commercial Finance (LTSBCF), which absorbed Lloyds TSB’s asset finance business six years ago and now supplies 22 percent of the UK’s invoice discounting, is now absorbing the old Bank of Scotland Cashflow Finance business.

Last month, the results of a UK business intelligence survey conducted by Ipsos MORI found the proportion of SMEs claiming to use asset finance had crept up from 16 percent to only 17 percent between winter 2008 and summer 2009. The proportion of businesses using invoice discounting, however, shot from 12 percent to more than 16 percent, a 33 percent increase.

No surprise, then, that 55 percent of respondents to Vervaet’s question answered “Yes, we need to broaden our scope to satisfy customers going forward”, and 24 percent said they had already widened their product portfolio to include asset-based products in response to the recession.

At Close, the integration has involved training for staff on both sides of the integration, aimed at promoting recognition of leasing customers’ needs for invoice discounting, and vice versa. Mike Barley, who runs Close’s leasing and factoring arms, said he has seen particularly impressive returns from its ID customers, and plans to offer ‘packaged’ deals incorporating both leasing and factoring.

“Sales teams are specialised in particular facilities, and cross-refer opportunities to each other. Furthermore, they work with bank relationship managers at a local level”

A major advantage to packaged deals is the demand for multi-product support from distressed companies – a client sector that is set to keep on growing in 2010. For ‘phoenix’ firms, for example, a solid ID facility is often what seals the deal in terms of a risk decision on plant finance. No surprise, then, that CCF is seeking business introductions from insolvency practitioners and restructuring advisors, forming a partnership with the Institute of Chartered Accountants with this aim specifically in mind.

Centric Commercial Finance is a newer lender with invoice discounting at its core. It has excelled in a combined offering, growing steadily through lending primarily to ‘disillusioned’ clients since its timely inception on the eve of 2007. Sales director Andrew Rutherford explained that, unlike at CCF, asset finance is a relatively small part of Centric’s lending and often used as a ‘bolt-on’ facility to invoice discounting. It is most commonly used, he said, to refinance clients’ existing assets in order to release liquidity.

Centric’s lending is about using complementary products to keep struggling businesses alive where traditional bank facilities have failed, and this works because of its very close relationship with clients. Communication with customers occurs at director level, with in-depth discussion of business needs on a monthly or even weekly basis. Furthermore, said Rutherford, should a client fail, Centric is usually in a good position to take some control over the business and recover its position. With this extremely hands-on approach, Centric rides the line between an asset finance provider and an invoice discounter.

This intimacy, however, cannot be scaled up to the size of a volume lender. For the largest bank subsidiaries, even the teething problems faced by CCF are dwarfed by the question of how to acclimatise a mass frontline sales force with an entirely new product set.

For this reason among others, large-scale combined lenders are rare. RBS’s Invoice Discounting business runs completely independently of asset finance giant Lombard, while Bibby Financial Services, held in high esteem as a factoring provider, supplies leasing through a separate business. ING Lease, which absorbed ID into many of its country operations back in 2006, last year planned to carry out such an integration in the UK as well. A  spokesperson last month said this was no longer on the agenda.

Most interesting on this level, perhaps, is LTSBCF, which is now absorbing the old Bank of Scotland business. Ian Byers of LTSBCF explained: “Sales teams are specialised in particular facilities, and cross-refer opportunities to each other. Furthermore, they work with bank relationship managers at a local level. “Supplementing this are further specialist teams – ‘fast track’ telesales teams for simpler asset finance deals, dedicated debtor insurance teams, dedicated supplier finance teams, and specialist big ticket asset teams.”

LTSBCF has deployed its specialisms well, but Byers admitted the leasing and asset finance products on offer are fairly “vanilla”. But then again, LTSBCF is much more of a player in the ID sphere than it is in the world of leasing.

Contributed by Fred Crawley – Reporter, Leasing Life & Motor Finance – Leasing Life

Article image copyright: Flickr