Factoring Trade Finance: March 2019

3/31/19

Alternative Sources of Business Growth Finance: There Is More Than One Way to Fund Growth

Talk to any business owner or read the business section of any newspaper and you might find stories of struggling to access enough money to grow or maintain their business. But we are beginning to witness a change in how many business owners access finance now actively seeking alternative sources.

A survey conducted by the UK Private Business Forum found that 26% of businesses are looking for alternative financial products, with 21% looking for them outside traditional High Street lenders. In fact, in another survey conducted by the Federation of Small Businesses, it was found that only 35% of respondents used traditional overdraft facilities in 2011.

So if banks are constantly reluctant to lend to all but the lowest risk business, how can the rest of the UK business population finance growth? Here are some alternative sources of finance that are increasingly popular to investigate.

Alternative Sources of Business Growth Finance
Alternative Sources of Business Growth Finance

Better Working Capital Management


This may seem a strange financial source, but very often businesses sit in undiscovered cash reserves that can be used to finance growth. A report released by Deloitte in 2011 revealed that the largest business in the UK used 60 billion pounds of unproductive working capital. Inefficiencies in how working capital (debtors, shares, and creditors) are handled can bind your money unnecessarily. Cash can be opened and released back into the system so that it allows a self-financed growth plan that takes into account credit procedures, how credit requirements are given and how extraordinary payments are pursued.

Ensuring that stocks are stored at optimal levels through better inventory management is another area where cash can be spent to support and finance growth. Take a good look at your inventory management process and identify areas where cash is trapped.

Good working capital management is not only about better control of debtors and shares, but also about maximizing the requirements provided by creditors. Do you want to maintain a first-class relationship with your supplier by paying long before the due date? You can positively influence the position of your cash by taking full advantage of the requirements offered by your supplier. Have you made full use of your position by looking for broad requirements from say 30 days to 45 days?

Being more efficient in the way managed working capital can spend sufficient funds for self-financing growth plans.

Alternative Sources of Business Growth Finance
Internal Sources of Finance

Personal Resources


In the traditional way of funding, it becomes more difficult to access business owners now looking for their personal resources to fund growth. Whether it's using cash savings, using a personal credit card or taking an additional mortgage on the residential property, these sources are instant solutions. A survey by the Federation of Small Businesses found that 33% of respondents had used their savings to fund growth. Besides being more easily accessed by using personal resources, it is often a cheaper financial source.

Family and friends


Sometimes referred to as three F - family, friends, and fools - this can be a less stressful way to increase finance. In some ways, it can, but it can also be a journey full of danger. Make use of their private network of business owners financial resources by looking for loans and offers to pay higher interest rates than those offered on High Street savings accounts, or offer a piece of equity in the business in return for the investment.

Improving finance in this way can be relatively easy because demand and fulfillment are based on personal trust. Usually, the Business Plan will be presented by highlighting investment opportunities and risks, but ultimately success will reach the depth of the relationship and level of trust.

The danger in raising funds in this way is that the nature of the relationship will change from person to business transactions. Failure to pay regularly according to agreed conditions, or even total failure to pay, can damage relationships that cannot be repaired carefully.

Asset Finance


The Asset Finance Industry is based on the concept of either saving money or speeding up access to it. Asset financing, which consists of invoice discounts, factoring, and asset purchase funding, has been available as a financial source for years but only now has gotten more recognition. Figures issued by the Asset Based Finance Association, a trade association representing the industry, show that up to the third quarter of 2011 the amount financed by Association members increased by 9% compared to the same period the previous year. While the increase may not seem significant, this is contrary to the background of the decline in traditional bank loans.

In a world where capital assets 'cash is king' help save cash by financing the purchase of assets such as vehicles, machinery, and equipment. Because investors seek basic assets as collateral, there is usually no requirement for additional collateral. According to the Asset Finance and Leasing Association, one in three businesses in the UK that have external finance now use asset financing.

Asset investors can help speed up the flow of cash in the business by allowing faster access to cash tied to debtor books. Discount facilities and invoice factoring give companies the ability to immediately access up to 80% of invoices instead of waiting for agreed credit terms to run their programs. Such financial facilities will accelerate cash turnover in business, allowing businesses to fund high growth rates.

New players such as Market Invoices enter the market to allow businesses to increase finance against selected invoices. Utilizing high-value individuals and funding Market Invoices act as auction houses with funders 'offers' to go up against certain invoices.

Alternative Sources of Business Growth Finance
Governance and how Islamic finance development

Crowdfunding and Peer-to-Peer


A relatively new phenomenon is the concept of increasing finance by utilizing the power of the crowd. The low-interest rates paid on savings have historically caused savers to look for new ways to increase their returns. With business owners struggling to get the funds they need, it's only natural that a market will be created to unite the two parties.

CrowdCube entered the market in 2010 to match private investors who want to become dragons with businesses that want to raise capital. After a business passes the initial review stage, their proposal is posted on the site and potential investors show the level of investment they want to do with a minimum amount as low as £ 10.

Businesses that are looking for more traditional loans must consider the Funding Circle. Founded in 2010, Circle Funding is also suitable for individual investors who are looking for better returns with businesses seeking additional funds. Businesses can apply for funds between £ 5,000 and £ 250,000 for a period of 1, 3 or 5 years. At a minimum, a business must have submitted a two-year account with House House and assessed to achieve a risk rating that guides potential investors.

When the concept of crowdsourcing starts to mature, we tend to see more players entering this market to take advantage of the need for better investor returns and easier access to business finance.

Alternative Sources of Business Growth Finance
Venture capital funds as an alternative financing source

There Is More Than One Way to Fund Growth


Accessing finance to fund a growth plan does not have to be difficult if you are ready to look for alternative providers. Funding growth is no longer the exclusive property of traditional High Street banks and it is now the responsibility of business owners to find alternative routes.

3/30/19

Car Finance - What You Need to Know About Dealer Finance

Car financing has become a big business. A large number of new and used car buyers in the UK purchase vehicles based on financial types. Maybe in the form of bank loans, dealer finance, leasing, credit cards, trusted 'Mother & Father Banks', or various other forms of finance, but relatively few people actually buy cars with their own money again.

A generation ago, private car buyers with, say, £ 8,000 in cash to spend will usually buy cars up to a value of £ 8,000. At present, the same £ 8,000 is more likely to be used as a deposit on a car that can be worth tens of thousands, followed by a monthly payment of up to five years.

With various manufacturers and dealers claiming that anywhere between 40% and 87% of current car purchases is based on financial types, it is not surprising that there are many people jumping on the car finance cart to take advantage of the buyer's desire to have the latest car, the most striking available within their monthly cash flow limit.

Car Finance - What You Need to Know About Dealer Finance
Car Finance - What You Need to Know About Dealer Finance

The appeal of car financing is very easy; You can buy a car that costs far more than you can, but (hopefully) can manage a small amount of cash monthly for a certain period of time. The problem with car financing is that many buyers do not realize that they usually pay far more than the face value of the car, and they do not read the good print of the car financing agreement to understand the implications of what they 're registering for.

For clarification, this writer is not pro or anti-financial when buying a car. What you have to watch out for, however, is the full implication of car financing - not only when you buy a car, but for the full financial term and even after. The industry is highly regulated in the UK, but regulators cannot make you read documents carefully or force you to make wise financial car decisions.

Financing through dealers


For many people, financing a car through the dealer where you bought the car is very convenient. Often there are also national offers and programs that can make car financing through dealers an attractive option.

This blog will focus on two main types of car financing offered by car dealers for private car buyers: Purchasing Purchase (HP) and Personal Contract Purchase (PCP), by briefly mentioning one third, Lease Purchase (LP). Rental contracts will be discussed on other blogs immediately.

Financing through dealers
Financing through dealers

What is Buy Purchase?


HP is like a mortgage in your home; You pay a deposit in advance and then pay the rest for the agreed period (usually 18-60 months). After you make the last payment, the car is yours officially. This is how car financing has been operating for years, but now it is starting to lose support for the PCP options below.

There are several benefits to Employed Purchases. Easy to understand (deposit plus a number of fixed monthly payments), and buyers can choose deposits and the time period (payment amount) according to their needs. You can choose a period of up to five years (60 months), which is longer than most other financial options. You can usually cancel the agreement at any time if your circumstances change without massive penalties (although the amount owed may be more than the value of your car earlier in the agreement period). Usually, you will pay a total less than your cellphone than PCP if you plan to look after the car after the finance is paid off.

The main disadvantage of HP compared to PCP is higher monthly payments, which means the value of the car you normally can afford is lower.

An HP is usually best for buyers who; plan to keep their car for a long time (i.e. - longer than the financial period), have a large deposit, or want a plan for financing a simple car without a shock at the end of the agreement.

What is a Personal Contract Purchase?


PCP is often given another name by manufacturing finance companies (for example - BMW Select, Volkswagen Solutions, Toyota Access, etc.), and is very popular but more complicated than HP. Most of the new car financing offers advertised today are PCP, and usually, dealers will try and push you towards PCP through HP because it tends to be better for them.

Like the cellphone above, you pay a deposit and make a monthly payment for a certain period of time. However, monthly payments are lower and/or shorter (usually a maximum of 48 months), because you don't pay for the entire car. At the end of the period, there is still a large part of the finance that has not been paid. This is usually called GMFV (Guaranteed Minimum Future Value). Car finance companies guarantee that, under certain conditions, the car will be worth at least as much as the remaining financial debt. This gives you three options:

1) Return the car. You won't get money back, but you don't have to pay the rest. This means you have rented a car effectively all the time.

2) Pay the remaining amount owed (GMFV) and save the car. Given that this amount can be thousands of pounds, it is usually not a viable option for most people (which is why they finance cars from the start), which usually leads to ...

3) Exchange some cars with new (or newer) ones. The dealer will assess the value of your car and take care of financial payments. If your car is worth more than GMFV, you can use the difference (equity) as collateral for your next car.

PCP is best suited for people who want a new or almost new car and fully intend to change it at the end of the agreement (or maybe even faster). For private buyers, it is usually cheaper than renting or contracting to rent financial products. You are not bound to return to the same factory or dealer for your next car, because any dealer can pay finance for your car and conclude the agreement on your behalf. This is also good for buyers who want a more expensive car with lower cash flow than usual with HP.

The disadvantage of PCP is that it tends to lock you into your car replacement cycle every few years to avoid large payments at the end of the agreement (GMFV). Borrowing money to pay for GMFVs and caring for cars usually gives you a very little monthly payment than starting over with a new PCP with a new car, so it almost always moves the owner to replace it with another car. For this reason, manufacturers and dealers like PCP because it keeps you coming back every 3 years instead of looking after your car for 5-10 years!

What is the Rental Purchase?


LP is a little hybrid between HP and PCP. You have deposits and low monthly payments like PCP, with a large final payment at the end of the agreement. But, unlike PCP, this final payment (often called a balloon) is not guaranteed. This means that if your car is worth less than the amount owed and you want to sell/exchange it, you have to pay any difference (called negative equity) before thinking of paying a deposit on your next car.

Read small print


What is absolutely essential for anyone who buys a car with finance is to read the contract and consider it carefully before signing anything. Many people make the mistake of buying a car in the financial sector and ultimately unable to make their monthly payments. Given that your financial period can last for the next five years, it is very important for you to consider carefully what might happen in your life over the next five years. Many sports cars that are funded very large must be returned, often with serious financial consequences for the owner, because the pregnancy is unexpected!

As part of purchasing a car in finance, you should consider and discuss all the various financial options available and make you aware of the pros and cons of various car financing products to ensure you make informed decisions about your money.

Stuart Masson is the founder and owner of The Car Expert, an independent car buying agent and not based in London for anyone who wants to buy a new or used car.

Originally from Australia, Stuart has had a passion for cars and the automotive industry for almost thirty years and has spent the past seven years working in the automotive retail industry, both in Australia and in London.

Stuart has combined his extensive knowledge of all matters relating to cars with his own experience in selling cars and providing a high level of customer satisfaction to bring unique and personal car buying agents to London. Car experts offer special and special adviser to anyone who is looking for a new or used car in London.

3/29/19

The Best Function of Class Finance for Police Forces

Background

Police funding has increased by 4.8 billion and 77 percent (39 percent in real terms) since 1997. But the days when troops have enjoyed such a level of funding are over.

The Chief of Police and senior management acknowledged that the annual cycle of seeking year-to-year efficiency was not sustainable, and would not address cash shortages in the coming years. Facing slower funding growth and real cash deficits in their budgets, the Police must adopt innovative strategies that result in increased productivity and efficiency needed to provide high-quality policies to the public.

The performance changes needed to meet this challenge will only be achieved if police services fully embrace effective resource management and utilize technology, partnerships, and people efficiently and productively. The financial function has an important role to play in overcoming these challenges and supporting the objectives of the Force economically and efficiently.

The Best Function of Class Finance for Police Forces
The Best Function of Class Finance for Police Forces

Challenge

Police forces tend to foster a division and department culture rather than corporate culture, with the procurement of individuals who do not exploit economies of scale. This is partly a result of more than a decade of functions that move from center to division.

To reduce costs, increase efficiency, and mitigate the threat of "top-down", initiatives that are driven from the center, the Police need to establish a corporate headquarters and encourage behavior change. This change must involve compliance with the corporate culture rather than a series of silos that run through the organization.

Developing the Best Class Financial Functions

Traditional financial functions within the Police have focused on transactional processing with only limited support for management information and business decision support. With a new focus on efficiency, there is now an urgent need for the finance department to transform to add greater value to strength but with minimal costs.

1) Aligning to Force Strategies

Because the Police Forces need funds to function, it is very important that finance and operations are closely aligned. This collaboration can be very strong and help provide a significant increase in the Force, but to achieve this model, there are many obstacles to overcome. The Finance Director must see whether their Forces are ready for this collaboration, but more importantly, they must consider whether the Force itself can survive without it.

Finance requires a clear vision that focuses on its role as a balanced business partner. But to achieve this vision great efforts from the bottom up are needed to understand the significant complexity in the system and the underlying processes and to develop advanced ways that can work for the organization.

The success of each change management program depends on its implementation. Changes are difficult and expensive to implement correctly, and often, the Police do not have relevant experience to achieve these changes. Even though financial directors are required to have appropriate professional qualifications (not as former police officers as happened a few years ago) may have developed in the Public Sector with limited opportunities to learn from and interact with the best methodology in the class. In addition, cultural issues surrounding self-preservation can present obstacles to change.

Although it is relatively easy to convey a message of financial transformation, getting a commitment to initiate bold changes can be difficult. Business cases often do not have the qualities needed to go through change and even where they are of high quality, senior police officers often lack commercial awareness to trust them.

2) Supporting Power Decisions

Many Finance Directors are interested in developing their financial functions. The challenge they face is convincing other Force members that financial functions can add value - by devoting more time and effort to financial analysis and giving senior management tools to understand the financial implications of key strategic decisions.

The Best Function of Class Finance for Police Forces
The Best Function of Class Finance for Police Forces


Maintaining Financial Control and Managing Risk


Sarbanes Oxley, International Financial Reporting Standards (IFRS), Basel II and Individual Capital Assessment (ICA) have all placed financial controls and reporting under the spotlight in the private sector. This, in turn, increases the spotlight on financial control in the public sector.

The 'Best in Class' Police financial function not only has minimum control to meet regulatory requirements but will evaluate how laws and regulations that must be fulfilled by financial functions can be used to provide value to the organization. Providing strategic information that will enable the power to fulfill its objectives is the main task for leading financial functions.

3) Value for the Force

The impetus for development over the past decade has moved decision-making to the Division and has led to increased costs in financial functions. By utilizing a number of initiatives in the transformation program, the Force can utilize up to 40% savings on financial costs along with increasing financial team responsiveness and quality of financial information. These initiatives include:

Centralization

By concentrating on financial functions, the Police can create centers of excellence where industry best practices can be developed and shared. This will not only re-empower the department, create greater independence and objectivity in assessing projects and performance, but also leads to more consistent management information and a higher level of control. The Police Unit can also develop a group of business partners to act as a strategic liaison for departments and divisions. Business partners will, for example, advise on how department and division commanders can meet the budget in the coming months instead of merely suggesting that the budget has been missed for the previous month.

With regular figures carried out at shared service centers, financial professionals will find they now have the time to act as business partners for divisions and departments and focus on strategic issues.

The cultural impact on the department and division commander should not be underestimated. The commander will worry that:

  • Their budget will be centralized
  • Workload will increase
  • There will be limited access to financial individuals
  • There will be no support on the spot


However, if a centralized shared service center is properly designed, none of the above applies. Even from centralization under the best practice model, leaders must obtain the following benefits:

  • Strategic advice provided by business partners
  • Increased flexibility
  • Improved management information
  • Transactions are faster
  • Reducing the number of unresolved queries
  • Greater clarity about services and provision costs
  • The forum for finance is strategically aligned with the needs of the Force


A Style that moves from a decentralized system to a centralized system must try and ensure that the financial function does not lose contact with the Chief of Police and Division Commander. Troops need to have strong business cases for financial transformation combined with governance structures that include operational, tactical and strategic requirements. There is a risk that the potential benefits of implementing such changes may not be realized if the program is not managed carefully. Investment is needed to create a successful centralized financial function. Usually, the potential future benefits of greater visibility and control, consistent processes, standard management information, economies of scale, long-term cost savings and a group of financial professionals who are proudly empowered, must outweigh the initial costs.

To reduce commercial, operational and capability risks, the financial function can be fully outsourced or partially outsourced to third parties. This will provide guaranteed cost benefits and can provide opportunities to improve relationships with vendors that provide a best practice process.

Process Efficiency

Usually, for the Police, the focus on development has developed a silo-based culture with different processes. As a result, there are significant opportunities for standardization and simplification of processes that provide scalability, reduce manual effort and provide business benefits. From just rationalizing the process, a style can usually produce a 40% reduction in the number of processes. An example is the use of electronic bank reports instead of using manual bank reports for the bank and receivable reconciliation processes. This will save the huge effort involved in analyzing data, transferring data into different spreadsheets and entering data into the financial system.

Organizations that have a silo operating model tend to have significant inefficiencies and duplications in their processes, for example in HR and Payroll. This is largely due to the teams involved meeting their own goals but not aligning with the organization's goals of the organization. Police forces have a number of independent teams that are interdependent for data with finance in departments, divisions, and headquarters that send and receive information from each other and from the entire Force. The silo model leads to ineffective data received by the team who then have to do additional work to get the information needed.

While the arguments for development have been well-made in the context of decision making that moves closer to providing operational services, additional costs in terms of resources, duplication and inconsistent processes rarely appear in the debate. For the current financial climate, these costs need to be evaluated.

Culture

In the transactional process, leading financial functions will set targets for staff members every day. This target set is a metric-based cultural element that develops leading financial functions. If the right productivity and quality metrics are implemented and when these targets are challenging but not impossible, this is proven to result in increased productivity and quality.

The 'Best in Class' financial function in the Police will have a service-focused culture, with the main goal of providing a high level of satisfaction for its customers (departments, divisions, employees & suppliers). The 'Best in Class' financial function will measure customer satisfaction on time through a metric-based approach. This will be combined with a broad team focus on improving the process, with process owners, who do not have to be team leaders, who have a thorough improvement for each financial process.

Organizational Improvement

The organizational structure within the Police usually consists of leading team supervisors consisting of one to four team members. Through centralization and consolidation of financial functions, there is an opportunity to increase the range of controls to the best practice level from 6 to 8 team members to become a team leader/supervisor. By adjusting the organizational structure and increasing the range of controls, the Police Force can obtain significant cash benefits from reducing the number of team leads and lead teams can add a better management experience than managing a larger team.

The Best Function of Class Finance for Police Forces
The Best Function of Class Finance for Police Forces

Technology Enabled Enhancements

There is a large number of technological improvements that can be applied by the Police to help develop 'Best in Class' financial functions.

This includes:

A) Scanning and workflow

By adopting scanning and workflow solutions to replace manual processes, better visibility, transparency, and efficiency can be harvested.

B) Call recording, tracking and workflow tools

Police forces generally have a number of individuals who respond to internal questions and suppliers. This query is not recorded or tracked. The consequences of this are double:

  • Requests spend a lot of effort in certain financial teams. There is a high risk of duplication efforts from the lack of query queries. For example, requests can be responded to for 30 minutes by person A on the financial team. Because these queries are not recorded, if the individual submitting the query is called again and talks to different people then for only one additional question, this can take up to 20 minutes to ensure that the background is explained correctly.
  • Questions can have multiple interfaces with business. Unresolved requests can be responded to by up to four separate teams with substantial delays in providing clear answers to suppliers.


The implementation of call recording, tracking and workflow tools to document, measure, and close internal requests and suppliers combined with central query team settings, will significantly reduce the effort involved in responding to questions within the finance department and division, because as well as in the division and the actual department, and procurement.

C) database solutions

In all financial departments, there are a large number of spreadsheets used before they are incorporated into the financial system. There is a tendency to transfer information manually from one spreadsheet to another spreadsheet to meet the needs of different teams.

Replacing spreadsheets with a database solution will rationalize the number of inputs and lead to austerity efforts for frontline Police officers and Police Staff.

D) Customize reports

In obtaining management information from the financial system, police staff run a series of reports, import this into excel, use search to match data and apply pivots to describe data as needed. There are significant manual efforts involved in carrying out this work. Through adjusting reports, the output of the financial system can be set to provide the data in the format needed through the click of a button. This will benefit from reduced efforts and increased motivation for team members who have previously carried out these worldly tasks.

In designing, organizing and implementing tools that enable new technology, the Police Unit will face a number of challenges including investment agreements; IT capacity; ability; and procurement.

These challenges can be reduced by partnering with third-party service companies with whom investments can be shared, skills can be provided and the procurement cycle can be minimized.

The Best Function of Class Finance for Police Forces
The Best Function of Class Finance for Police Forces

Conclusion

It is clear that cultural, process and technological changes are needed if police forces want to provide sustainable efficiency and high-quality services. In an environment where for the first time troops face a real money deficit and must reduce the number of police and support the number of staff while maintaining current levels of performance, the current model of financial delivery requires new thinking.

Although there are a number of obstacles that must be overcome in achieving the best class financial function, it will not be long before such a decision becomes mandatory. Those in front of the curve will surely find themselves in a stronger position.

Rakesh Sangani is a Partner at Proservartner and focuses on transforming back office in the Police, Health, Local Government, and Professional Services.