articles by xbridgers
Business Money, March 2006
We now live in a New World - a world where the Internet serves customers as a powerful tool to research and find the best products from the most appropriate lender. And those lenders who adapt to meet customer needs will thrive in this New World where customers increasingly depend on the Internet to help them make sound decisions.
The invoice finance industry of the past offered only two products: factoring or discounting. Business development managers told customers which of the two products the customer needed. Customers didn't have sufficient information to question this advice.
How times have changed! Business owners using the Internet to research product offerings are becoming more demanding. Factors - led mainly by the Independents -- have responded by increasingly offering products such as CHOCS, confidential factoring and disclosed discounting facilities. Discounting is now offered to companies with a turnover as low as £250,000. One-year contracts are being replaced by trial periods. Good rates and service are no longer enough. Factors must have a broader spectrum of products to meet the demands of increasingly better educated customers.
Split ledger facilities are an emerging industry trend. Such facilities are ideal for companies in industries such as construction and technology services. Split facilities can placate underwriters uncomfortable with such complications as staged payments and maintenance contracts. Customers mix the benefits of factoring and discounting to ensure they obtain a superior product at a better overall price.
The natural evolution of split ledger facilities will be for customers to have multiple facilities in place - each for a particular part of their ledger. Public sector debt will be factored by a specialist; export debt with a different specialist; and "vanilla" debt with a more traditional factor (competing primarily on rate). Customers with multiple facilities can dip into and out of each facility as needed.
It is conceivable that in a number of years, even smaller businesses will go online and put up for tender single debtors, specific projects, and perhaps even individual invoices. Ledgers will be divided into pieces to make them most attractive to the individual underwriters of both sector specialists and less specialised lenders with highly competitive rates (and access to cheap capital). Or perhaps a far-sighted bank interested in retaining the overall customer relationship will bundle such multiple facilities and enable this type of flexibility themselves. Precedents already exist where a bank-owned factor passes customers requiring "high touch" levels to an independent factor.
While such a future may now seem far-fetched, one only has to remember how much progress has already been made online during the last five years. Today's customer is increasingly using the Internet to become better educated and is demanding more from lenders. The most successful lenders will listen carefully to those demands and create solutions that enable the customer to win.