Business Media Articles (Archived)

The difference between factors and bankers

When a troubled client of a factoring company operated by one of the High Street banks was unable to obtain a satisfactory answer from his account handler he attempted to take the matter to 'higher places'. He went to the Managing Director.

However the only satisfaction he was to receive was the reply: "Directors don't get involved with clients; speak to your account manager."

Had the client used one of the factoring companies independent of the high street banks his access to the 'man at the top' would not have been barred; certainly in my company, mail that is addressed to me is put on my desk and telephone calls that come in for me are put through to me.

That, sums up in a nutshell the difference between the High Street banks' factors and the independents; there are those who understandably have to be rule-bound because of the scale of numbers, and there are those who don't. It is impossible to treat 4,000-plus clients as individuals, yet that is the average number of clients with the clearing bank factors. The independents count their totals in hundreds.

As with most 'commodities', the bulk sell approach by the 'big boys' may result in cheaper prices. But does it give value-for-money ? What price can be put on personal service, business relationships, and a financial partnership approach to funding ?

Let's look at service.

Because of their very size and the inevitable bureaucracy

High Street bank factors take longer to bring a new account on-stream, and if they don't do one deal there are ten more in the pipeline
Their approach - even their policy towards their clients - will be determined by any changes in overall bank policy
Their rules can often result in severe limits on customer concentration
Cash is not always credited to the clients' accounts immediately
Additional refactoring fees are made

Let's face it, if you have 80 percent of the market you are not hungry, and in fact you may be forgiven for being somewhat arrogant.

On the other hand, if you have no natural flow of business enquiries, the entrepreneurial approach must replace arrogance.

Often the directors of independent factoring companies have a stake in their own businesses. This is certainly true in my company where both myself and my fellow directors had to take second mortgages on our family homes to purchase a small part of the equity. They are certainly less bureaucratic and more flexible (even inventive) enabling them to do 'specials' and make on-the-spot decisions based on relationships, partnerships, personal chemistry, and even 'gut feel'.

An example in my own company was when we placed faith in a team carrying out an MBO from a security company. They were using factoring to raise the funds against the debtors, but they were £30,000 short and the deal was in danger of collapsing. Because of our flexible approach and the time we had taken to get to know the team, we felt we were able to over-pay them to meet the shortfall - they were clearly delighted and we have never regretted the move.

This came about because we had made it our business to be fully aware of all the circumstances regarding this particular client - the opposite to clearing banks with directors in their ivory towers who are rarely available or accessible for such decision-making. In my company every client has the home telephone number of every member of the board.

At an 'independent' the 'production line' is replaced by individuals who are part of an organisation with a 'flat' management structure where we are aware of what is going on within that organisation.

On my regular visits to new clients I am repeatedly told how we won the business from clearing bank factors who have been driven by market share, sold the product cheaply and then failed to give the service. Again, this is not surprising bearing in mind they offer a ratio of five clients to each member of staff; ours, and those of other independents, are nearer 3.5 to 1, and the handling requirements of account managers are roughly double at 80-plus clients (the highest is 140) compared with Close Invoice Finance where it is 40.

These unsolicited testimonials speak volumes and present a far more credible argument than I can ever produce: they all reinforce the message that it is impossible to sell cheaply and at the same time give service and value. I leave you with the following quotation:

'The bitterness of poor service lasts long after the initial sweetness of a cheap price' Ruskin

return to business media articles