Keywords: Invoice, invoice finance, MarketInvoice, Asset Based Finance Association, lending, collection fees, factoring

Invoice finance companies accused of 'unacceptable behaviour'

Aislinn Collins | News | 21 August 2012

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Invoice financing is becoming increasingly popular as bank lending dries up and companies look for alternative ways to secure the working capital they need to survive.

In July MarketInvoice showed just how much the sector has grown by revealing that it had processed more than £20m of blue chip invoices auctioned by small firms since it began trading last February.

And earlier this year figures from the Asset Based Finance Association (ABFA) showed that invoice financing in the UK and Ireland had risen by 7% in 2011 while net lending to businesses had fallen by 3.7%.

But the industry remains unregulated, and while it may be providing a lifeline to some companies unable to access bank lending, for others it seems there are drawbacks.

According to the Campaign for Regulation of Asset Based Finance, some companies are behaving in an unacceptable manner by profiting from business failures.

Speaking to the Telegraph, Brian Moore, leader of the group, said that in some cases invoice finance providers are abusing the termination and collection fees that are charged when firms go into administration.

Sometimes fees can be around 20% of the entire ledger value instead of just the outstanding balance, and there have been instances in which the charges have been applied even when there is no outstanding balance.

Commenting on the claims, Ian Johnston, an independent invoice finance broker at Factoring Solutions, told the newspaper that he believes there is an "unhealthy relationship" between some invoice finance firms and the insolvency sector.

"Putting the client into administration can be highly lucrative for the [provider] involved," he remarked. "The boss of one [invoice finance] company recently told me that one quarter of their profits come from termination fees."

But Kate Sharp, chief executive of ABFA, insisted that her organisation's members have no desire to force customers into insolvency as it is in their best interests for the relationship to be a lengthy one.

"Unfortunately, despite the best efforts of all involved, sometimes businesses fail," she stated. "Where that happens our members would seek, within the bounds of the contract signed by the client, to protect their commercial interests as best they can in that unfortunate situation."