Kellock trading options
It has taken some time but people in business are at last learning touse the F-word without embarrassment. The word is 'factoring' and, if itstill comes a long way behind the traditional bank overdraft as a sourceof finance, it is growing fast, as Rob Outram explains. The factoring market is a highly competitive one, with all the major players battling for a bigger share of the action. Tight margins for the suppliers of finance could threaten service standards and there are plenty of traps for the unwary in the small print.
The growth in term loans is only part of the explanation. In a follow-up to a study carried out inInternational Factors owned by Lloyds Bank surveyed accountants from Big Six and non-Big Six firms to ask what they saw as the main priorities and problems for their small business customers.
Problems finding kellock trading options had declined markedly sincealthough this remained the second most pressing issue. Overall, the business environment is a favourable one for factoring: In the last recession banks pulled the rug from under many of their small business borrowers.
An overdraft facility can be withdrawn or restricted with little notice, making it a risky form of finance. But it is during an economic upturn that factoring really comes into its own. Because the facility is linked to sales it can keep pace with the growing demand for working capital without regularly renegotiating.
Kieran opted for invoice discounting with TSB Commercial Finance rather than factoring because he wanted to keep responsibility for credit control with the company. The push by the major banks to seize a greater share of this growing market is making kellock trading options a very competitive one. Most of the leading factors are now part of larger banking groups; last month, for example, Abbey National bought up County Factors, a medium-sized firm in the south west of England.
Ben Allen, chairman and chief executive of Kellock owned by Bank of Scotlandsays: Fees and rates are low but this in itself can involve some risks for the client, kellock trading options to Guy Stead, marketing manager at Maddox Factors part of the independent Bibby Group. If a factor has not carried out a thorough examination of a business before quoting — or if the client has not been completely open about any potential problems — the client can find that costs move kellock trading options upwards after the first year.
As well as unexpected fee hikes, Stead warns that large factors out to win market share may slash their rates to the extent that service kellock trading options. Another question is whether you are happy for your factor to be part of kellock trading options same group as your banker. This could be a convenient package — or a case of having all your eggs in one basket. It is also important to avoid being locked into an agreement for longer than you want. Ben Allen of Kellock which offers the right to cancel without penalties says: In other words, read the small print.
And also make sure that your chosen factor has the capacity to keep up with the scale of growth you expect for your business, not to mention sufficient financial stability.
Factoring companies do not often go broke but when they do the consequences for clients are serious. It took kellock trading options weeks to persuade the banks involved to waive their rights in return for any prepayments which had already been made against them.
Some companies are granting credit which is probably not kellock trading options the best interests of the client.
You have to be careful. Factoring is about relationships. The major players have an unquestionable parentage and those at the smaller end tend to have good operators working within clear parameters. David Gilbert, a corporate recovery partner at BDO Stoy Hayward, is bullish about the ability of the factoring sector to avoid copying the mistakes of the banks in the last recession. Now that factors and discounters are taking on greater exposures, Gilbert says, they will need to look for better security and manage their risks carefully.
If factoring is growing, it is also changing. As well as competitive rates, kellock trading options are packaging their product to ensure that they have something for every niche in the market.
The idea is that the changes do not have to involve complex renegotiation, fresh legal agreements or a change in the manager handling kellock trading options account. Indeed, a combination of bank finance and insurance can serve as an alternative to factoring altogether. Innovations in information technology are helping to attract clients and cut costs.
Two or three years ago on-line services were something of a novelty; they are now becoming standard for most of the large players. Factoring or invoice discounting can be an effective way to finance working kellock trading options, especially for a growing business. But it is still very much a case of caveat emptor.
It is important to remember that factoring involves a service as well as a loan and that this service has to be paid for. As ever in business, there is a lot of small print to read before you can safely sign kellock trading options the dotted line. The factor will normally also charge a fee to reflect the cost of collecting the debts.
The discounter advances a sum, kellock trading options a loan using the receivables as security. In a time of crisis, will your factor stand by you?
East Sussex manufacturer Grainger Smith found it was not only banks that pulled the plug on clients during the last recession. The company, which makes bubble wrap and other plastic packaging, ran into difficulties back in and entered a corporate voluntary arrangement CVA as an alternative to liquidation. The company had only a few days to find another factor to step in: Just one day before the CVA meeting, an agreement was signed to provide Grainger Smith with full kellock trading options facilities.
Five years on, Grainger Smith is back in profit and turnover has doubled; the management hopes it will be out of the CVA later this year. In it negotiated a new factoring arrangement with Maddox which provides it with disclosed invoice discounting rather than full factoring. Factors are not the only lenders who will advance kellock trading options using future receivables as security but for banks one of the obstacles to this is bad debt.
Export credit insurance can be used to cover the risk but they kellock trading options been reluctant to rely on this because if the exporter misses a premium or otherwise breaches the terms of its policy the ultimate losers will be the banks.
Now, however, a change of approach by the insurers kellock trading options made this a more viable form of financing. When Jaguar was putting together a major deal to export its luxury cars to dealers in the US, credit insurance played a kellock trading options part.
The policy assigned the benefits to the banks that were supporting the deal. To give them greater security the insurers included a performance guarantee which meant that even if Jaguar or its dealers did breach the terms of the policy the banks would still be covered against loss. The deal went ahead successfully with Jaguar increasing export sales as a result. Bryan Squibb, European managing director of the Credit Insurance Association, the brokers which arranged the insurance package, says: This conversion will definitely affect business in this country whether or not the UK decides to join the economic initiative.
Kellock trading options have begun to review the possible opportunities and challenges presented by EMU and to establish the steps they must take in order to make an effective and profitable transition to the new currency. According to the current agreement, companies in single market states may begin using the new currency from 1 January By 1 Januaryat the latest, all participating countries are expected to begin trading in the euro which will become the basis for all retail pricing and accounting.
For small and medium-sized businesses, the transition will kellock trading options present special challenges. Yet, fundamentally, it is the nature of the business rather than its size which will determine the impact.
In the short term, smaller businesses may be kellock trading options to restrict their trading to sterling. Eventually, however, all companies will have to accept the single currency in order to remain competitive and continue doing business. EMU affords the prospect of immediate benefits for companies which trade in several currencies and the possibility of gaining commercial advantage through increased competition and price visibility.
The transition itself will create immediate market opportunities for accountants, software providers, information technology experts, legal advisers, organisation consultants and appropriate equipment vendors. Most businesses will almost certainly be affected by some aspects of euro business whether or not the UK elects to participate in the teething period.
Should we be among the nations initiating EMU, UK businesses may decide to implement the conversion either from day one, wait until the ultimate deadline of 1 January or make the transition in strategic stages over the three-year period. No single course of kellock trading options will be appropriate for all enterprises and it will be up to each to review the steps to implementation of EMU and decide what pace of transition kellock trading options be most beneficial to their business.
The Association for the Monetary Union of Europe is currently recommending that businesses enter the transitional period with flexible accountancy systems in place which will permit the possibility of trading in the euro as well as in pounds sterling.
In the short term, it is fairly obvious that transitional dual pricing will present kellock trading options for smaller businesses. In May of this year, an EU Commission round table will convene to discuss the issue and information campaigns about it and may begin to shed more light on important issues of EMU implementation. At this juncture, there is still much that remains uncertain and ill-defined but as decisions are being taken and issues progressively clarified, reliable information will be essential to managing the transition.
Local Euro Info Centres have been established throughout the country by the European Commission, generally in association with local county councils. Banks and financial services too are preparing for EMU and should be kellock trading options invaluable source of information and advice on how individual companies can best manage the transition.
There may be advantages in making early adjustments to IT systems, kellock trading options the necessary alterations for the millennium with those vital to implementing EMU. Companies should also establish an EMU strategy with a costed schedule for implementation, and then put into practice the strategic changes appropriate to their business.
Along with banks, factoring and invoice discounting companies will also be adapting their services to accommodate dual currency accounts kellock trading options euro-based products. But how will their systems be affected by the year ? On 1 January in just under three years time, computer systems that are not programmed to handle the date change from the year to the year may crash — and with enormous ramifications. Businesses may also have non-IT systems, such as telephone systems, safes and alarm systems, with dates embedded in them that could also be affected.
Many small businesses can only plan ahead as far as tomorrow — or at the most next week — and to them seems a long time away. Many large companies realise they need to ensure their systems are millennium-compliant by October If they wait until October they will have no year end to finally test their systems prior to kellock trading options year The Government invited the Confederation kellock trading options British Industry and the Computing Software and Services Association to set up Taskforcean independent body whose role is to raise kellock trading options of the date problem among UK businesses.
Ian Taylor MP, the minister for science and technology, says: I warn anyone in business who fails to face up to these challenges now that kellock trading options could be exposed to severe and costly repercussions.
Businesses must act now and update their IT systems. The Government has a responsibility to ensure that smaller companies are aware of the problem and are able to cope with the necessary technology kellock trading options. What Ian Taylor fails kellock trading options say is what the Government is doing to help small businesses and how much it is going to cost.
It is estimated that the cost to UK businesses of year compliance will run into billions of pounds. Large businesses have IT departments, consultants and finance directors to plan for the millennium problem and are kellock trading options likely to be able to come up with the finances to pay for it.
But what of smaller concerns? Small businesses must act quickly to solve the problem or they may find that time runs out for them. If a business is unable to invoice, cashflow and working capital will dry up.
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