When Positive Cash Flow Finance was launched in December 2007, it entered the market on the eve of tremendous changes to the economic environment in the UK that would cause huge disruption for businesses up and down the country.

First Capital Factors, on the other hand, sprang up amongst the economic ‘green shoots’ of 2010 as the economy began to return to surer footing – albeit with some way to go before a return to the pre-crisis climate.

Yet both factors have mined the opportunities that arose from each side of the financial crisis and, what’s more, both insist that far from struggling to compete with large, bank-owned factors, their position as small, owner-managed receivables finance providers actually gave them a competitive edge during a difficult period.

David Smith, Managing Director of Positive Cash Flow Finance, explains, “We set up in December 2007, just as the financial world was changing. That created some great opportunities, because the banks that had been previously shifting money to all sorts of businesses suddenly started to re-examine their existing portfolio and, in many cases, managed away from very good businesses that we were then able to support. The timing wasn’t amazing,” Smith admits, “but it worked out quite well.”

For Positive, a strong funding line from Lloyds TSB and an experienced management team helped the company not only to survive such a major crisis so early in the business’ lifetime, but exploit opportunities in the market that were being overlooked by the banks.

“The banks stopped lending, but we had un-drawn credit lines that we were able to use, so it got us into situations where we were able to fund businesses that ordinarily wouldn’t have gone to a relatively new, independent factor. But the reality is that people had a hard time with bank managers during the recession and instead came to secure funding with us; a very much relationship-driven company that tries to work with the clients.”

David Marsden, of First Capital Factors, saw a similar situation to be taken advantage of in the post-crisis environment, with the banks exercising caution in their business lending activity – particularly in regards to smaller companies – even once the worst of the crisis was over. Marsden launched his first factoring venture, RDM Factors, in 1989, after working with smaller businesses and seeing the extent of their cash flow difficulties as a chartered accountant. After 17 years, the business was sold to SME Invoice Finance in 2006.

“About two years after we sold RDM, I began to see more opportunity in the economic environment, which had many similarities to the climate in 1989. Given the experience I was now armed with from RDM, I felt more able to do it again. I got together with members of my old team to establish First Capital, with former RDM partner John Bush as a consultant.

“There have been changes in the market in the last few years – obviously the recession – but I do see more opportunities arising as a slow recovery begins. I think the banks will remain prudent, and won’t find it easy to take advantage of some of the opportunities that will appear in the market as they might not appear commercially viable to them. As a smaller operation, we can service those clients in the way that many small businesses want to be serviced, and we can do so profitably and safely.”

But both Smith and Marsden feel that it is not just the banks’ unwillingness to fund smaller firms that enables independent factors to capture market share in the UK. According to Marsden, the personal service offered by First Capital Factors is what gives the company and other independent factors like it their competitive edge.

“It’s not just the personal attention, though that is an easy way to sum it up in a few words,” Marsden states. “It is more than that. There are a number of small factors like First Capital Factors that, like their clients, are owner-managed – we worry if it’s a slow week the same as our clients do. Because we don’t have layers of interim management, we are able to get much closer to our clients and furthermore, because we tend to have smaller rather than larger exposures, the average client will also be a lot smaller and that enables us, at a senior management level, to form a close relationship with the client at the same level. It is unlikely that those at a senior level at a large, bank-owned factor would be able to get as close to a customer with a £100,000 funding line as we would.”

Smith agrees. “I think the crisis changed the way people look at what we do. The only thing that’s unique about our business is the service we provide and the people who provide it. Prior to that, it was very much about price and maximising the most funding, but once things wobbled, some people found that their lender was less likely to support them. I think that business owners now look at value for money and say ‘right, what I want from this arrangement is a relationship and a partnership with my funder’ – and that has definitely worked in our favour. In three and a half years we haven’t lost a client due to service.”

Another significant change that should benefit smaller independent factors, according to Marsden, is the restrictions on home loans that have followed the crisis. Marsden explains that prior to the crisis, many small business owners opted to re-mortgage their homes or take out home loans to acquire funding in the £50,000 to £100,000 bracket, which directly competed with funding lines from small factoring companies. Now that this has become more difficult – not to mention less appealing – businesses could start to approach smaller factors for similar sized funding lines.

Yet significant challenges remain for independent factors that are necessarily not faced by bank subsidiaries – particularly in terms of funding.

“The thing that we have to guard closely is our ability to get funding ourselves,” adds Marsden. “It is of course a very cash-consumptive business by definition, and as we grow we need to source the funding for that growth. As an independent factor, one needs to protect that relationship with the funder very carefully. If you lose their confidence, it will have a very damaging effect on the future of the business.”

Both First Capital and Positive have benefited from the strong collaborative experience of their management teams – an issue that presents one of the biggest challenges to sourcing funding for an independent factor. With this in mind, do Marsden and Smith see a new spate of independent factors being launched by similar industry experts?

“I think it depends on the quality of the people who are trying to do it,” states Smith. “I think there is probably less access to funds than there was, and I think that two or three years ago there was probably more of an appetite to support new start-up factors – and you can’t run this sort of business without access to funding. However, I do think the funding would be there if the quality of management was at the right level.

“We’ve been supported fantastically by Lloyds because we have a very experienced management team here,” Smith adds. “I think you would be hard pressed to find another board in the industry with as long an experience in the sector than ours.”

But will the market stay positive for independent factors in the future? “I think so,” states Smith. “What we’re offering isn’t a commodity. It’s a close relationship and a better service and that’s what a lot of people want to see, especially after having bad experiences with the banks.”

“There always have been and always will be business managers who prefer to feel that they are dealing with a factoring company that is part of a bank,” adds Marsden. “But, at the same time there are a lot of small businesses who prefer to do just the opposite and deal with a factor that is not aligned with any clearing bank.”

Article contributed by BCR Factorscan

“Understanding your environment is of course essential for doing business. The environment that factors work in has always been fairly dynamic. However the crisis has taken this to new levels.  This conference is about understanding the opportunities in the post crisis environment – the opportunities of the new normal.

What is the new normal?

“The ‘new normal’ is a phrase coined by William Gross, who is the founder of the global investment management firm Pimco, to describe the post-crisis environment of slow growth, unemployement and inflation.

“But for the factoring industry, the new normal could easily stand for high growth, new markets and record profits.  That’s a new normal that I think you could all get used to and many of you have already seen the start of this.  I believe that this is only the beginning of what could be really good times for factors.

Why is that?

“For factors, the new normal may be quite different to that of traditional bank lenders. Growth out of recession will put new demands on recession-weakened balance sheets as companies try to restock to meet new orders. Larger corporates are increasingly interested in invoice finance structures as cash-flow becomes a central focus of many treasury operations. According to a recent report by the Hacket group, freeing up unnecessary working capital is the cheapest form of financing – all in all, there is now a much bigger focus on working capital and cash flow. 

“The business world is beginning to see the strength of the receivable. And it’s not just SMEs, it’s also large corporates, sometimes very large.  The crisis has projected the receivable into the spotlight more than ever before. Banks, financial institutions and corporates of all sizes are beginning to understand that receivables is an asset you can count on much more than other assets. Its short-term, self-liquidating nature means that much of the uncertainty of advancing against other assets is absent. 

“This means there are vast opportunities looming on the horizon for receivables financiers – only around 5% of trade receivables are currently financed in Europe; but according to Igor Zax, the author of a report by the London Business School, the potential could be five times that figure. Factors with their in-depth knowledge of receivables are in a unique position to take advantage of these new opportunities.

Where will we see the growth?

“Events of the crisis are accelerating and driving a growing trend towards greater efficiency in the utilisation of excess working capital.  There are three ways in which we will see this happening, 1. the increasing use of traditional methods of factoring, 2. growth in supply chain finance, and 3. the increasing use of Receivables Exchange type operations. And what will oil the wheels of this process even further is the move towards document standardisation and document digitisation through the harnessing of technology to create fast information flows; and also the greater utilisation of credit insurance to make receivables funding propositions more attractive. 

“This all points towards a significant and, in my view, inevitable commoditisation of receivables. This might not be what everyone wants to hear.  And it may not happen this year, it may not happen next year, but it will happen.  These are the processes of the new normal. The new normal created in the fallout of the crises that have changed the way the business of commercial finance is being done.  But commoditisation will not be comprehensive; there will still be a need for traditional factoring – it will be very hard to beat the strength of advancing against a ledger with a wide spread of relatively high risk debtors.

“The really big question is what are factors going to do about getting some of this new business?  Because if the factors don’t get it, someone else will – interest is growing fast.

“Jack Welsh, ex-CEO of General Electric, said ‘control your own destiny or someone else will’. I think there is a lot of truth in that statement for this industry.

The Challenge

“Factors should be able to exploit this growth – they have a head start; they understand the receivable better than anyone else.

“I believe this is the challenge for today’s forward thinking factors – how to exploit the changes that are happening, how to take advantage of the huge increase in receivables financing that the business world is heading towards. That means learning about the new methods of freeing up cash tied up in working capital, targeting new market sectors and harnessing existing technologies in new ways.

“In the next two days we will be hearing from industry experts who have already started thinking about the new normal. We’ll hear about opportunities in new markets, how factors can use their receivables knowledge to get involved in new securitisation deals, why leaders need fresh vision, how social networking is making huge inroads into business marketing strategies, where and why new markets are opening up and why receivables finance is firmly on the radar of large and very large corporates. We’ll hear all this and more. 

“This is all part of the new normal and for factors to profit from it they must understand it. What is required is some different thinking, some thinking which is beyond that of traditional factoring; what is needed is some new normal thinking. And that’s what we’ll do today and tomorrow.”

Image copyright: Flickr 

“Businesses will apply in the same way they would apply for the Enterprise Finance Guarantee Scheme,” said a spokesman for the Department for Business, Innovation and Skills (BIS).
 
“When they go to the bank for a regular loan and they’re not eligible then the bank should offer this as an alternative. To be successful with the application, businesses would need to have a credible plan of how they intend to export overseas.
 
“Our research shows there is demand for this, but we don’t yet know what the take-up will be. It will be reviewed after six months, but we’re hoping that it will be as successful as Enterprise Finance Guarantee.”
 
He added that it will give small businesses access to the credit they need to trade overseas.
 
“It can take longer to receive payments when trading overseas, so this should enable firms that couldn’t otherwise afford to export to expand overseas,” said the spokesman.

Article contributed by BCR Factorscan

Image copyright: Flickr

The post-recession environment presents a vastly different business landscape to that of three years ago. Some economists suggest that it is not just a temporary change but a transformation of the business and finance sectors and urge businesses to adapt to this ‘new normal’. For many businesses – SMEs in particular – traditional credit lines will remain reserved; with current research suggesting that as many as one in five small UK businesses are still unable to secure lending from their bank at present.

With Basel III regulations also threatening to impact on the cost and availability of trade finance – as trade finance is classed a high risk sector – many export businesses will need to begin to look to new financial services to support their liquidity and working capital needs, with some experts expecting a shift away from traditional finance in favour of receivables finance.

Steve Box, Managing Director of HSBC Invoice Finance (UK) and Chairman of the Asset Based Finance Association, explains, “With many predicting an export led recovery in the UK, businesses will be finding that their markets are changing, their customers are changing and that they are now looking into unfamiliar territory. By accessing the expertise that factors can offer in finance, credit management and protection from bad debt, businesses will be able to focus on winning new customers and serving them, instead of worrying about cash flow and getting paid.”

As for a shift towards asset based finance, Box believes this change is already under way. “The drive towards more capital efficient funding solutions and structured finance means businesses of all sizes are finding that they can usually generate more funding in a more efficient manner through the use of receivables, asset based lending and supply chain finance services.”

Michael Bickers of BCR Publishing, organisers of  Receivables Finance International 2011 conference in Rome, agrees that the New Normal holds a wealth of possibility for factors – if they understand this new environment and how to adapt within it. “For factors, the new normal may be quite different to that expected by traditional bank lenders. Growth out of recession will put new demands on balance sheets weakened by recession as companies try to restock to meet new orders. Larger corporates are increasingly interested in invoice finance structures as cash-flow has become a progressively central focus of many treasury operations

“A new playing field has been presented to global economies and the importance of understanding the fundamental shift in economic and market dynamics caused by the crisis in terms of its strategic impact on factoring business, is vital.”

How factors can  adapt and meet the demands of this new environment will form the focus of BCR’s Receivables Finance International conference in Rome, taking place on 24th – 25th March 2011 at the Parco di Principi.

Article contributed by Michael Bickers, BCR Factorscan

Close Invoice and Asset Finance said small to medium sized firms had options for securing sustainable finance if they were turned down for bank funding.

Managing director Harry Parkinson said, “Since opening our doors in Belfast in 2007, our lending figures have gone through the roof, in no small part due to the lack of funding forthcoming from the banks.

“We receive daily enquiries from frustrated and anxious companies across the country who feel very let down by their banks — the same banks to whom they have remained loyal over many years.

“The good news is that invoice and asset finance is stepping in to help fill the void created by the banks and helping to re-introduce a certain level of confidence to the small to medium sized enterprise (SME) market.”

Figures from the Asset Based Finance Association show that the UK invoice finance sector has grown by £114 billion in total client sales between 2000 and 2009 from £77 billion to £191 billion.

Last year, nearly 46,000 businesses in the UK and Ireland used invoice finance to fund their business and improve their cash flow with the industry advancing in excess of some £15 billion.

A recent report from the Department for Business and Skills, ‘Financing a Private Sector Recovery’, also pointed to invoice finance as playing a “crucial role in securing access to working capital during the recovery for many businesses”.

Mr Parkinson said, “It’s clear that asset-based lending is becoming a mainstream form of funding and we’re encouraged that increasing numbers of businesses are opening their eyes to the benefits it can bring.

“While it’s understandably easy for SMEs to become bogged down in the perpetual cloud of negativity and depressing economists’ forecasts, lending is happening and capital is available.

“It might not be in the traditional form but times have changed and we need to move with them.”

He added, “Forward-looking businesses are coming to understand that more flexible, modern options exist and that they no longer have to rely on bank loans and overdrafts.”

Contributed by Factorscan www.factorscan.com

The report, shows that, while many studies talk of increased business confidence around the nation, nearly a third of small businesses are pessimistic about their future.

Only 16% of businesses are very optimistic about their outlook, while only half are slightly optimistic about what’s ahead. The study also found that over two thirds of SMEs think there is a clear lack of support in their area to stay afloat and prosper.

The biggest financial concern for a quarter of businesses is a lack of access to finance with many doubtful that this will improve soon.

A third believe it will be more than 18 months before they see an improvement in the availability of finance, while a similar number don’t think it will ever get easier.

Contributed by Factorscan

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In August 2008 Simon Featherstone was appointed Managing Director LTSBCF following the retirement of Ted Ettershank.  Prior to this, Simon was Network Director for Commercial Banking. Before moving to that position in 2004, he was Deputy Managing Director for Sales Financing at Barclays. I recently met with Simon at Lloyds TSB’s offices in the City to find out how the company was performing at present and to also get his views on general aspects of the industry, particularly in the light of the current economic climate.
 
Bickers: How would you summarise the current trading position of Commercial Finance?
 
Featherstone: We’ve had record levels in terms of numbers of deals and hopefully on track for good profits too – we are ahead of budget year to date. In 2009 everyone was adjusting to significantly lower volumes and modifying budgets accordingly, but 2010 has been a much better place for our industry.
 
Bickers: Was the reason for this because the cost of money was lower?
 
Featherstone: The cost of short term money has now come down, but it remains high for long term money. But the main change is in that providers have re-priced for risk and associated costs in doing this. This is where the market was getting into some confusion, because some industry players had not previously been pricing for risk properly.
 
Bickers: So has the recession been good, bad or indifferent?
 
Featherstone:  It’s been good in that it’s made everyone look at risk in their businesses and re-evaluate it and also look at costs. It has been bad in the sense that there has been volume loss of assignments. You could have expected to see a pick up in volumes in a recession, but according to ABFA statistics, this did not happen.  We are now seeing an increase in volumes coming out of the recession.
 
This recession has also been different. Debt turn has come in by 10 days. When we saw the figures we were amazed. In this recession, businesses have been much more focused on collecting cash. My theory on this is that businesses have been fed 24/7 immediate news and from all directions – large TV screens at railway stations, Blackberry’s etc. This is the first recession where we have had this kind of coverage. This has emphasised the situation and made it feel far more immediate and that has prompted a much faster, protective response by businesses.
 
Bickers: How do you see invoice finance progressing over the next five years?
 
Featherstone:  I think there will continue to be indirect consolidation. We’ve seen players stop altogether rather than being purchased.  Maybe one or two new entrants too. But the market has to find a way of differentiating and improving its offering over traditional bank finance. We need to continue striving to meet our clients’ needs and provide a quick and simple process for accessing finance. Some businesses might consider that an overdraft is easier to access and brings less paperwork, so we need to find a way of delivering the product set ever more simply to clients and also look at our own costs to deliver it.
 
Bickers: Is your supply chain finance product achieving success?
 
Featherstone: It’s an interesting question and I could get a bit controversial here, but to my mind this area of the industry has been the ‘flavour of the month’. Although we have seen a lot of interest from major PLCs wanting to put a system in place, we have not seen much actual usage once that happens.  I don’t think that SCF is being used to its full extent despite the fact that it’s a quality product which could benefit all parties – suppliers and PLCs.
 
Bickers: So do you think that a lot of the trade finance banks who are currently getting into the supply chain finance space are perhaps wasting their time?
 
Featherstone: I’m sitting on the fence at the moment unless someone’s got a different way of persuading suppliers to use it that I’m yet to hear about. But if you talk to suppliers they are a bit cynical about it.  We have just launched our multi-currency facility, so we’re committed to providing a comprehensive suite of products which meet the requirements of businesses of all sizes.
                                                                                           
Bickers: What about new products – anything on the horizon?
 
Featherstone: We are just about to enhance our client charter and launch the first charter for our new business introducers. These are not new products as such, but we’re upping our game in terms of quality of service and the promise we make to clients and introducers. We believe we are the first major player to do something like this.
 
Bickers: Is this not already covered by a general Lloyds TSB banking charter?
 
Featherstone: There are ordinary banking charters but none that cover asset based finance as far as we’re aware.
 
The introducer charter is about showing our commitment to businesses and enhancing the external perception of the finance sector. If the industry is going to prosper, it needs to attract more clients, by continuing to develop its products and services. There are between 150,000 and 350,000 businesses in the UK that are capable of using factoring and invoice discounting services. At present, the client numbers are only about 43,000.
 
Bickers:  Many would argue that invoice finance should be kept separate to traditional bank lending and that providers should operate in different departments and even buildings to help achieve this. What’s your view on having these facilities delivered as a separate entity to traditional banking services?
 
Featherstone: The processes and approach and mindset are different. It needs to be kept separate from a risk process perspective, but the way it works is for the benefit of the invoice finance business and the banking business. If you package these together for the benefit of the client I don’t see why that should not work. We are a relationship bank, and we genuinely believe we can deliver a better service if you bank with us as well. You need specialisms in a bank but from a relationship point of view it’s much better to have one main contact.
 
Bickers: What about back-to-back factoring, and developments there?
 
Featherstone: We are still doing back-to-back factoring and still looking for more clients. We are currently backing 10 UK independent factors. But we are not looking to do this outside of the UK at present though.

Simon Featherstone, Managing Director, LTSBCF
Article contributed by Michael Bickers, BRC Factorscan

The industry has seen remarkable growth across many markets; UK, Italy, China, US, Ireland, The Netherlands, Spain, France, Germany, Taiwan to name but a few. And there are many more in South America, eastern Europe and other regions around the world, following in their footsteps.

For the more mature markets such as the US, UK and Italy, life in the factoring world has become more competitive as the markets head towards maturity.  Increasing competition means lower margins, increased risk and a greater focus on marketing, new products and greater efficiency. As with any industry facing these conditions, companies are looking for ways of getting back to higher profits and distancing themselves from competitors.

One methodology that has recently caught the eye of some factoring executives is blue ocean strategy. Blue ocean strategy is the brainchild of W. Chan Kim and Renée Mauborgne, both professors of strategy and management at INSEAD, the international business school in France. In their best selling book, Blue Ocean Strategy*, Kim and Mauborne challenge the traditional management thinking of mature industry businesses of going head to head with competition in attempting to achieve sustained profitable growth.  They contend that fighting over competitive advantage, battling over market share and struggling to achieve differentiation only create what they call ‘bloody red oceans’ where rivals ‘fight over a shrinking profit pool’. Kim and Mauborne claim that this strategy is increasingly unlikely to create profitable growth in the future.

Instead, what Kim and Mauborne argue is that businesses would be far better off by creating ‘blue oceans’ in which uncontested market space is opened up, thereby making the competition irrelevant and creating a leap in value for customers. The way to do this they say is through ‘value innovation’, i.e. creating differentiation by increasing value and low cost simultaneously. The authors cite a large number of examples of companies that have successfully created blue oceans, from Cirque du Soleil to Ford motor company to Yellow Tail wine company. These companies have all looked hard at their existing highly competitive markets and sought to create something different that simultaneously creates a product or service of significantly higher value but at lower cost. In the case of Ford it was the Model T car, Yellow Tail created a completely new style of easy drinking, fruity flavoured wine and Cirque du Soleil sought to completely change the traditional circus experience by distancing themselves from the increasingly controversial use of animals and infusing theatre into the circus experience.

One senior factoring executive who has readily proclaimed the virtues of blue ocean strategy is Michiel Steeman, Head of International Factoring at ING Commercial Finance in The Netherlands. When asked how he came across blue ocean strategy, Steeman explained that ‘a number of management books come across my desk, but this one particularly caught my attention’. Using blue ocean strategy helps in redefining a market says Steeman. According to Steeman, ‘there are several trends affecting the factoring industry at the moment, two of which are supply chain finance solutions and the whole area of digitisation’. ‘There has also been a ‘huge trend for using the web and also track and trace facilities whereby knowing the location of products at any given time can help in managing risk’. Steeman added that the ‘starting point for all these is the invoice and more particularly the information that leads up to the creation of an invoice. The longer term trend says Steeman, is the use of open account in international trade – ‘companies are more comfortable with markets like China and India. Letters of credit, cash in advance etc are no longer needed. Companies are more interested in strategic partnerships’.

With all this going on, Steeman has found that using blue ocean strategy has really helped him in providing a structure for the organisation’s line of thinking and to get an understanding of what the position of a market is now, where it might be heading and what its potential could be if viewed very differently.

Of course, many would argue that blue ocean strategy is nothing new and is just another variant of long understood ‘thinking out of the box’ or ‘blue sky thinking’ methodologies. However, where blue ocean strategy really seems to score is in its structured and framework style of approach and excellent and plentiful case studies. Indeed, Steeman argues that this approach is where the key value in blue ocean strategy lies.

However Steeman warns that the book is not so strong in implementation strategies and for help on this he recommends one should look further afield.

Kim and Mauborne do not suggest that their publication will guarantee success and even if it does, that it will last. And perhaps this is another reason why the book compares well with other management best sellers. For example, in Peters and Waterman’s enormously successful In Search of Excellence (1982) the authors went to great lengths to identify eight points that they felt were central to business success. However, the subsequent demise of some of the ‘excellent companies’ that the book highlighted, identified a central weakness in suggesting that these points would apply indefinitely.

Many factoring industry visionaries, including Steeman are predicting that for large factors, factoring will become a commodity product and that ‘traditional’ style factoring will be pulled back to niche markets and smaller players. Steeman goes further and says that ING will focus on big players and any suppliers to large corporates anywhere in the world. And ‘where we have a strong, local network we will focus on smaller clients’ says Steeman.

It would seem that with Steeman for one, blue ocean strategy in factoring, is perhaps already in use.

*Blue Ocean Strategy, W. Chan Kim and Renée Mauborgne, Harvard Business School Press.

Article contributed by Michael Bickers, BRC Factorscan

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In a survey of over 1,400 FSB members, only 18 per cent of businesses have applied for new credit, with 50 per cent of these successful in their application.  As the state owned banks have been given new lending targets by the Government, the survey also revealed that just over a third of businesses (36 per cent) had their application refused, with 12 per cent yet to find out the bank’s decision.
 
For businesses with existing finance, the survey also showed that 16 per cent had seen an increase in the cost over the last two months. Of these, 44 per cent saw between a two and three per cent rise, but more worryingly 12 per cent saw interest rates hiked anywhere between 10 and 14 per cent, at a time when the base interest rate is at an all time low. Only one per cent of respondents had seen the cost decrease.
 
The Chartered Management Institute’s (CMI) Economic Outlook Survey also found businesses struggling to access credit, reporting that 42 per cent of the managers surveyed at the beginning of April this year have experienced deterioration in the availability of finance for long term investment, while 40 per cent have also seen a reduction in short term investment. Eighty-one per cent surveyed by CMI agree that the government should introduce further measures to improve bank lending to businesses
 
The FSB believes that the introduction of the Small Business Credit Adjudicator announced in the budget earlier this year will help to ensure small firms are given a fair deal and a right of appeal against decisions made by big banks.
 
John Walker, National Chairman of the Federation of Small Businesses, commented, “Trust needs to be restored between banks, bank managers and business as credit conditions remain tight for small firms. We hope the next government – of whatever hue – will look at the best way to address the issues in the banking system to ensure that the UK has the necessary financing structures to support further economic recovery.
 
“Small businesses continue to bear the brunt of the financial crisis and are being penalised with extortionately high interest rates. At any time, not least when the economy is on such a fragile path out of recession, a 10 to 14 per cent increase in costs is highly unreasonable.

Image copyright: Flickr

For 2010, this trend looks set to continue for a while at least, although improvements in credit cover availability are filtering through, which should improve matters for international factoring and possible interest rate rises may reduce spreads a little.

But as any economics or management undergraduate will tell you, apart from the obvious impact on general commerce, a crisis also usually comes with unfolding pockets of opportunity as industry and business dynamics are altered by the economic environment.

For factors, the opportunity could be in providing supply chain finance, particularly to mid -sized corporates.  Prior to the crisis, supply chain finance was a service that banks were trying hard to sell to large corporates with the promise of better cash flow and processing efficiency for both the corporate and their suppliers. Although these large corporates showed interest in the idea, there was not the take-up that was initially expected.

However, since the crisis, the positions seem to have been reversed. With large and medium sized companies having to pay much more attention to their cash flow positions and traditional funding routes more restricted, corporates are turning to supply chain finance with real enthusiasm. In fact, such is the call for supply chain finance that one trade finance banker said recently that he expected demand to soon outstrip supply.

A factor’s expertise is in managing and financing receivables and since receivables finance is usually at the core of most supply chain finance operations, factors are in a unique position to take advantage of the rapid growth in demand.

In fact, in certain markets like Spain and Italy, factors are already operating supply chain finance. Only in these countries it is known as reverse factoring.

To offer these reverse factoring operations along with distribution finance – in order to provide finance along different links in the chain – and extend them to other factoring markets seems a potentially substantial new business opportunity for factors. This particularly applies to the mid-corporate sector where the factor’s parent banks have not quite such a relationship hold.

The challenge for factors is in how to draw on existing expertise and transpose this into a linked service across more than one part of the supply chain and at the same time investigate opportunities in other markets beyond those already offering reverse factoring. Factors may also need to think about new routes to market and to perhaps target larger corporates than have previously constituted typical factoring clients.

Article contributed by Michael Bickers – www.factorscan.com

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