Is the Invoice Finance Industry Regulated by Law?

Invoice Factoring company Uk simply factoring brokers

For those of you who have stumbled across our website and wondering what the invoice finance industry is and how it can help your business. Then in a nutshell Invoice Finance gives businesses a cash injection against their invoices, as you can imagine the product is slightly more complex than this but if you went back to the basics the above is exactly what Invoice Finance is. What if something goes wrong whilst I am midway through a facility is there someone I can turn to for help, can I appeal a decision made by my finance company that I disagree with. If you are thinking any of the above we have just mentioned, then you have landed on the right page and also you have come with a question which isn’t easy to answer.

As you may be aware the invoice finance market is massive. For example from 1st Jan 2014 to the end of March 2014 just over £67 Billion pounds passed through the industry. If you took an estimate of £50 Billion a quarter that means the industry is worth in or Invoice Finance industry around the £200 Billion pounds mark.

Don’t Assume You Have Protection

With the rough synopsis we have just given you above and based on the fact that the industry is finance related, you would assume the industry is massively regulated given the nature of how heavily regulated most other industries are today. However in short you would be wrong, once you take out an invoice finance facility with your chosen funder to an extent you are at their whim. Don’t get me wrong the industry isn’t made up from a bunch of cowboys, if you are looking to enter this market then you will notice there is a plethora of competition from a lot of large multinational funders and even some household names.

As you can imagine given the size of the market and the rate of expansion over the last 10 years, a lot of the funders do offer you various guarantees such as a service guarantee which means you can leave your facility at anytime with their blessing. However a lot of these guarantees are down to their in house discretion and by any stretch of the imagination they certainly aren’t mandatory.

Just before you lose hope there is a small saving grace which has been incorporated about 2 years ago. There is an association called Asset Based Finance Association, which a few years ago launched a financial ombudsman service for any customers in the industry that feel they are being treated unfairly by a funder that is in their association. This service has been welcomed within the industry by any and all funders, from the large banks to the small independents. In the industry what this company says to an extent goes, so if you feel you are being treated unfairly then 99% of the time their help and advice will certainly help you.

Invoice Finance Industry Differs from Personal Finance

However I should point out that this initiative is only a guideline and by no means is it mandatory. Because you are entering a business to business contract you areNOT covered by any laws or safety nets, because the agreement you have entered is NOT regulated. Because of this there are a lot of things that still go on in the industry that in an ideal world shouldn’t. I certainly don’t want to get bogged down in any hearsay and again in the last 5 years or so a lot of funders have pulled their socks up.

Invoice Finance Industry Rules You Must Understand

There are a few points that most people don’t know when entering into a factoring agreement, such as;

o A factoring company can instruct an IP (insolvency practitioner) to come and audit your company at any point.

o If an IP is appointed it has to be approved by the factoring company and in most cases the factoring company is the one who actually chooses who the IP is (talk about a conflict of interest).

o Any increase in your funding line is subject to an additional charge (this does change from funder to funder)

The above three points are just a few examples on a few T&Cs in any factoring agreement that again by law the finance manager doesn’t have to tell you about. However with the kinds of funders in the market you can have confidence in the industry.

Don’t get me wrong with what I have said above, all we are trying to encourage here is not to set the fear of god into you, but to promote the industry as a whole to go under more regulation and give the client more protection.

What also helps is if you have been introduced to the funders by a third party who passes this funder a lot of business, your third party contact could also help you out in negotiations with the funder.

I hope this blog has given you food for thought and if you feel you want a helping hand to get over the landmines then please do not hesitate to get in touch.

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