the problem with factoring: abfa ceo, kate sharp, on how the industry is changing
DESCRIPTION
Do you have strong opinions about invoice finance products? Many accountants we speak to at Funding Options are wary of invoice finance options. Some have heard horror stories, some have had poor experiences in the past, and some confess that they just don’t know enough about these products to recommend them with confidence. In this hour-long webinar Kate Sharp of the Asset Based Finance Association (ABFA) joined us to talk through the myths and facts surrounding invoice finance options, and to answer your questions.TRANSCRIPT
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The problem with factoring:
ABFA CEO, Kate Sharp, on how the industry is changing
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Bailey Kursar, Funding Options
• Part of a team that helps businesses access a range of lenders with one application
• ICAEW Member Rewards partner
• Find out more at www.fundingoptions.com or call 0845 366 4199
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Kate Sharp, CEO of ABFA
• Leads the trade body for invoice finance & asset based lending industry
• Represents 95% of Asset Based Financiers in the UK
• Find out more at www.abfa.org.uk/accountants
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What are the biggest issues facing your business clients?
?
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What are the biggest issues facing your business clients?
Poor cash flow
Finding new sales prospects
Getting finance
Keeping clients happy
Asking clients to pay on time
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What are the biggest issues facing your business clients?
Lack of cash Bad debt Declining sales Poor credit management0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Source: Financial Marketing Limited, survey of 2,063 accountants
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What are the biggest issues facing your business clients?
78%of accountants said clients have reported an increase in late payments in the last 12 months
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What are the biggest issues facing your business clients?
UK businesses are settling outstanding debts on average...
+25 days beyond agreed terms
Source: 2012 late payment index from Experian
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What are the biggest issues facing your business clients?
80%stated that the biggest challenge their clients face today is the removal or restriction of traditionalforms of finance
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Getting finance for business clients
Invoice
financeHire purchase
Leasing
Commercial mortgages
Government-
backed lending
schemes
Term loansOverdraft
s
Alternativ
e lenders
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Getting finance for business clients
Improves cash flow
Unlocks cash and grows with turnover
Maintain healthy client relationships
Free up resource in the business
Access to specialist experts
Extensive credit history not required
Invoice
finance
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Invoice finance: the facts
UK and Ireland businesses using invoice and asset based finance
43,000Services
Distribution
Manufacturing
Transport
Retail Construction
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of clients have turnovers under £6,000,00080% & around one third have turnovers under £500k
Invoice finance: the facts
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total funding advanced to clients by ABFA members in 2012
£16.7 billion
Invoice finance: the facts
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Invoice finance: the facts
Lender takes control of sales ledger
Client no longer has burden of credit control
Customers will be aware of the facility
A readily available form of finance
Factoring
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Invoice finance: the facts
Credit control managed by the business
Generally less expensive than factoring
Customers may not need to know about the finance facility
A trust account is set up so that money can be transferred between the business and the lender
Invoice discountin
g
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How does
fit in?
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How does ABFA fit in?
Asset based finance is not currently subject to statutory regulation in the UK or the Republic of Ireland
A self-regulatory framework, introduced by ABFA, covers their members
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How does ABFA fit in?
Deal fairly with
clients
Transparent and timely information
Clear legal
documentation
Effective and timely client
services
Act with
integrityHandle complaints, overseen by ABFA
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How does ABFA fit in?
Complaints are handled by the lender in the first instance
After 12 weeks, or when the lender issues a ‘Deadlock’ letter, the complainant can then register the complaint with ABFA
ABFA has commissioned the Ombudsman Service to provide the independent complaints process for the industry
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Addressing the assumptions about invoice finance
?
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Addressing the assumptions about invoice finance
It’s way too expensiveCreates rifts between
clients and customers
Too much paperwork
Contracts lock clients in for too
long
It’s a ‘lender of last resort’
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Addressing the assumptions about invoice finance
It’s way too expensive
The cost is competitive compared to bank loans and other products
Businesses using invoice finance benefit from savings on costly overheads, such as a credit control team
Better cash flow results in fewer bank charges
£
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Addressing the assumptions about invoice finance
Contracts lock clients in for too
long
For the right business, lenders are willing to be more flexible
There are more and more products coming onto the market, all with different terms
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Addressing the assumptions about invoice finance
It’s a ‘lender of last resort’
Lending criteria are more flexible than bank loans
Invoice finance is designed for growing businesses, not those in trouble
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Addressing the assumptions about invoice finance
Too much paperwork
Some products are more suited to businesses with a dedicated finance manager
Some lenders now manage accounts online and make reports on client sales ledgers available
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Addressing the assumptions about invoice finance
Creates rifts between clients and customers
An invoice financier may provide a dedicated credit controller who effectively becomes part of your team
Some invoice discounting products remain confidential, so customers aren’t even aware of the facility
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A one minute case study
Established in 1996 in Leeds
Boasts 10 top health and supplement brands as part of a growing portfolio
Recommended by their accountant, invoice finance has meant they can pursue an international growth strategy.
Their substantial facility finances their UK invoicing and their export debt.
“We have been delighted with the flexibility that invoice discounting provides” (Philip Bryne, MD)
BR Pharmaceuticals
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?
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www.abfa.org.uk/accountants