December 2, 2014
The oft used phrase “if it seems too good to be true, it probably is” has a certain ring of truth when you see the rapid growth of the single invoice finance market and the way it is being promoted and executed by some.
This market is being funded by specialist spot factoring companies and crowd funders. The innovation is excellent and the sales and marketing techniques compulsive; however, the operating techniques in some cases are questionable and there are accidents waiting to happen as a result of weak or no security of the assets that are being funded. I must emphasise, not all players in this market take such a care-free position.
Even though single invoices are being funded, is that a reason to offer no personal guarantees, no debentures, no credit control and financing of contractual debt? This is utopia of course, for many borrowers, but also a red flag to less than scrupulous operator that could easily take advantage of these terms. There is a reason why more traditional factors take security and precautions, and verify debt to avoid double financing of the same invoice, debtor collusion etc., not to mention actually having some kind of title or ownership over the debt that is being financed; so hold on to your hats investors, and see how well your investment is managed in this business.
Inevitably, as realisation kicks in, there will be a move to a more secured offering, where proper due diligence is undertaken and proper security taken. In our view this need not weaken what is a very good idea.
Whilst expensive when comparing the cost of financing the same invoice with a ‘whole turnover’ factoring company, there are still some great USP’s in terms of length of contractual tie-in, and paying for only those invoices which are being financed. Crowd funding, spot factors and bidding platforms carry great merit, but not at any cost and I’m sure the more innovative will come up with techniques of taking security without impinging slick funding.
At Pulse, we try and offer our own levels of innovation, and as well as offering whole turnover, and specialist contractual funding facilities, we have been offering Selective Debtor financing successfully for the last three years. This offers all the flexibility, cost savings and no long term tie ups, which those in the single invoice market offer, but with sensible security which will hopefully mean we will be able to offer this product for years to come and not be another here today, gone tomorrow statistic which is is so bad for the market as a whole.