• Regulation Of The Invoice Finance Industry

    There has been some ongoing discussion about the pros and cons of invoice finance, factoring and invoice discounting becoming regulated products i.e. being regulated by the FCA (Financial Conduct Authority). I wanted to put forward my thoughts about the subject, in the hope that they may be considered by anyone that is constructing an argument for, or against, regulation of the invoice finance industry.

    Hidden Fees?

    The case for FCA regulation of the invoice finance industry is often predicated upon the notion that hidden fees are widespread or that unfair contractual terms are the norm, with both cited as being unfair to customers. However, having been involved with invoice finance brokerage for over a decade, I can recall very few examples of customers being unhappy because of "hidden fees". Of course costs are often an issue, many existing users want the cost of invoice finance reduced, but in most cases the fees are understood, its just a case of wanting what they have cheaper. The same goes for contractual terms. Many invoice finance companies now offer short contract periods and there are numerous "spot factors" and "selective invoice discounters" that allow customers to dip in and out of invoice finance with no minimums or contractual obligations.

    Increased Cost

    There would be a huge cost associated with regulation. The application fee alone, for an organisation to become FCA regulated, is between £1,500 and £50,000. Those costs will inevitably be passed onto the customers, making these products more expensive.

    Unhappy With Your Invoice Finance Company?

    There are two other key facts that are pertinent. We surveyed 200 randomly selected existing invoice finance users, across a spectrum of different providers, and we found that 98% of existing invoice finance users (197 out of 200 to be precise) were prepared to recommend invoice finance to other businesses. I know that we conducted the research in a completely impartial way so to me that reflects an industry that is treating its customers well.

    Secondly, the ABFA (Asset Based Finance Association), the UK invoice finance industry body, recently launched a code of conduct for their members and an Ombudsman process, to back up arbitration with customers. In the first year, of the 43,000 clients handled by it's members, only 13 complaints were received by the Ombudsman. This equates to just 0.03% of clients complaining to the Ombudsman. Again, this supports the idea that generally, the industry is treating it's customers well.

    Yet Another Barrier Or an Enabler?

    The other argument that I have heard for regulation is that regulation is a prerequisite for the government to really get behind invoice finance and enable invoice finance to find a bigger share of the business finance market. There might be some beneficial support that would come from this, and I have frequently highlighted awareness as one of the key issues for our industry. However, I fear that the cost of invoice finance, currently being offered to a market where only 39% of businesses have any borrowing requirement at all, is not going to be addressed by this - and that is often the key barrier to acquiring new customers. It is also not true to say that there isn't already government support for these products, for example, ban on assignment is in the process of being outlawed.

    Self Regulation Of Invoice Finance

    Based on these key facts, I fail to see the argument that the invoice finance industry warrants further regulation. It would appear to be doing a good job of self regulation, as evidenced by low levels of complaints and high levels of customer advocacy for these products. Regulation would add more costs, that will ultimately drive prices higher, at a time when lower cost finance, and greater product awareness, is required to bring these products to a wider audience.

    Reply To The Factoring Training Question Posted

    Replying to the question posted about where to get factoring related training - firstly please contact Mike Vince who provides specialist training for the sector. Otherwise, UK Finance provide a range of factoring related training.

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Comments (4 comments)


"Thanks for the comments. To me its a case of not seeing the necessity. I guess you could argue there could be benefits in someone regulating absolutely everything in life, and it is hard to argue against such regulation - other than to make the argument, as I have in this case, that if its not broken, why fix it. Regarding codes of practice, the ABFA already has a code of practice, with an Ombudsman arbitration process which has been called on in a tiny minority of cases. NACFB is a good organisation, again hard to argue against compulsory membership, other than to ask what problem we are trying to fix?, and to once again draw attention to the cost of any kind of compulsory oversight, which ultimately will end up being passed onto customers. Interesting debate though!"

12:00 - Thursday January 14th, 2016

Glenn Blackman

"More to add to this topic! I have had a couple of conversations, with finance providers, about the benefits of regulation - as they see them. In several cases, their motivation to move towards regulation seems to be how it will narrow the field of competition by weeding out either smaller businesses (competitors that will be unable to shoulder the cost and burden of regulatory compliance) or those small, independent competitors that are unlikely to be able to hold a high enough levels of capital adequacy. These arguments do not seem a sound basis to lobby for more red tape - these, combined with the increased costs, will not be in the customer's favour. Regulation cannot be used as a badge of legitimacy, with which to seek competitive advantage. After all, the banking sector has been regulated for ever but that didn't stop it from almost collapsing the economy. The answer is clearly - more regulation!"

12:00 - Friday January 27th, 2017

Sean Morrow

"Interesting comments Glenn. I must admit in the numerous conversations I have had with various parties and individuals promoting regulation I have never heard any of them mention what benefit it would give to the consumer/customer. Only an inference that Invoice Finance has lots of issues which going down the regulatory route will solve. Sure the industry needed a kick up the backside to get its act together and to a large part 3-4 years on this has generally worked (your comment concerning the number of cases referred to the ombudsman seems to back this up), and when you consider the rather tarnished reputations of some of those industries that are already regulated, banking and insolvency for example, it does make you wonder."

12:00 - Friday January 27th, 2017

Fernando Nasato

"Hello, Where can I get a course to work with Factoring in London? Thanks "

12:00 - Wednesday February 13th, 2019

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