Connect with us

Interviews

CASH FLOW KINGS – CLEAR FACTOR, THE DECENTRALISED GLOBAL INVOICE FINANCE ECOSYSTEM DESIGNED FOR SME’S

Ricky Shankar, Chairman of Clear Factor

 

How was inter-bank lending affected by the 2008 financial crisis?

In the aftermath of the financial crisis of September 2008, money market interest rates rose sharply and there was a virtual freeze in inter-bank lending. A principal source of funding for loans to businesses and individuals was no longer available.

SME’s were directly affected. These small businesses, more than any other, relied on bank debt including overdrafts and loans for their external financing needs and were particularly at risk from a collapse in bank lending. Indeed, the available evidence from 2008 suggests that small businesses were not only finding it increasingly difficult to obtain finance, but were dealing with the withdrawal of promised finance, experiencing sharp increases in loan interest rates and were having facility fees imposed. Even firms with good credit histories were not immune to these problems. Banks became more risk averse and small business owners were being offered smaller loans, as falling house prices meant they had reduced collateral.

 

What type of SME’s were affected?

Ricky Shankar launched his then software services firm Amsphere, in 2002 to help FTSE 100 businesses reduce their risk of business change, particularly in IT.

Like many entrepreneurs getting started, Shankar had put up his home as collateral with a high street bank – HBOS. Amsphere grew quickly and exponentially, posting 100% growth in revenue and profits. In 2005, Amsphere continued to expand and subsequently, payment terms lengthened. Yet, despite being profitable, cash flow was becoming an issue and Amsphere required access to working capital in order to pay the monthly bills.

Shankar looked in to invoice financing and within a few weeks agreed an invoice finance facility with HBOS. In short, Amsphere was able to draw down 85% of all invoices raised immediately. Their cash flow problems were solved at a stroke.

Ricky Shankar

The next three years saw Amsphere’s trajectory further rise, peaking in 2008 when the firm was named in The Sunday Times fastest growing Techtrack companies in the UK. HBOS publicised Amsphere’s accolades and were quick to also take credit.

In 2009, as a direct result of the financial crisis, HBOS was taken over by Lloyds and they merged to become Lloyds Banking Group, the largest retail bank in the UK.

The following year, Lloyds recalibrated its risk assessment and Amsphere was now deemed ‘high risk’ despite being a reliable client and posting no bad debts. In no uncertain terms, Amsphere was given six months to find a new invoice finance lender.

Shankar quickly sought an alternative arrangement with Bibby Financial Services and a deal was signed. However, three days before the transfer between banks, Bibby pulled out of the deal, asking for directors’ homes as collateral. Amsphere, now struggling as many SME’s were in the recession, still remained profitable but was three days away from collapse.

Shankar contacted Simon Featherstone, who at the time was Managing Director of Lloyds Commercial Finance. A meeting with Lloyds was arranged whereby it was explained how the failings of banks would in effect be putting a perfectly profitable and fast growing UK SME out of business and Featherstone convinced Lloyds to take back Amsphere as a client.

Whilst Shankar’s predicament had a happy ending, thousands of other profitable businesses were not so fortunate. According to data from the Federation of Small Businesses, 50,000 small businesses fail each year due to cash flow issues.

 

So, is the Alternative Finance Marketplace changing? 

“After my experience, I saw the opportunity for the invoice financing sector to grow away from the banks. There are almost six million small businesses in Britain today. Of those, less than one per cent are funded by high street banks!” added Shankar, who is now Chairman of Clear Factor, a transparent, democratised global invoice-finance ecosystem that provides every viable SME with access to fair and affordable working capital.

“SME’s today have very few choices for working capital. Low borrowing rates no longer exist as interest rates range from 12% to 100% per annum for SME loans via the alternative finance lenders. Most lenders require director guarantees, additional collateral and debentures on the business. SME invoice finance for most of the business community still remains at a very nascent stage of development. That is why we have launched Clear Factor to change the playing field forever.”

 

So what does Clear Factor bring that is new to the sector, as the invoice financing industry has been using the banks’ collapse of 2008 as their marketing tool for the last decade?

Clear Factor is a new financial paradigm that has absolutely no reliance on banks which is attractive from a customer point of view. We have seen how people are flocking to digital platforms such as Tide and Starling instead of the high street banks.

Clear Factor is levelling the playing field so that all SMEs can access all investors on a global level through the auction system. Clear Factor will give every viable SME anywhere on the planet, in any currency, access to the affordable working capital they need to grow. The fair interest rate will be determined by the auction and agreed to by the SME.

Clear Factor is focusing on micro and small segments of the SME market – those that are not currently serviced by banks for invoice finance. There are no lock-ins, impositions, hidden costs or contractual binds and there will always be a quick payment against the invoice. The only fee is the ecosystem fee which is 1.0% of the withdrawal amount taken and this applies to the SME, individual investor and trade investor.

What is not ‘new’ but important for Clear Factor is that the company has a mandate to make sure that it is recession robust. It is about protecting SMEs from a possible future financial crash and a repeat of 2008.

 

Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Interviews

WHY MANAGING RISK PERFORMANCE WILL BE LENDERS’ BIGGEST CHALLENGE THIS YEAR

Michal Smida, Founder & CEO, Twisto

 

  1. What are the key trends you’re seeing in lending?

Q2 was characterised by a conservative approach and a very proactive reaction to managing credit risk. There was substantial tightening in approval rates for onboarding new clients – this in part is due to the uncertainty of the potential impact of unemployment, as well as the increased challenge of gaining access to capital markets. We saw as much as 50% reductions in approval rates across the industry.

There was also a bigger focus on collections and managing risk in the existing portfolio, this includes more proactive and frequent communication with clients. Q3 has seen an easing of the above measures as prime client portfolios in the EU have recorded positive non-performing loan (NPL) performance. In some cases, customer payment behaviour has improved vs. pre-COVID, with some lenders recording their best performance to date.

 

  1. The 2008 financial crisis was the catalyst for alternative lenders. Do you think the current pandemic will be a similar agent for innovation and change, and if so, what might it look like?

The shift to digital has been an ongoing theme since 2008, which gave rise to many great fintechs, but also pushed banks to digitalise rapidly. What the current crisis has brought is increased customer adoption of what has already been in the market for some time. So we don’t see the change in the product offerings of financial institutions, but rather a change in customer behaviour and their willingness to use digital channels, which are not only much more convenient, but also safer and quicker to use in comparison to traditional offline processes.

 

  1. What are the biggest challenges for lenders in the next 12 months?

Maintaining and further managing risk performance. Q4 will be critical in proving the resilience of the customer base. As governments have stepped in to support businesses and the wider economy, the possible impact on unemployment has been delayed.

This in turn can lead to credit deterioration once the support stops. Venture capital and debt markets effectively shut down in Q2, with reopening noted in Q3. As many lenders require additional capital to sustain growth momentum, the key challenge will be attracting capital from investors who became even more selective and cautious.

 

  1. What do lenders need to prioritise to deliver a better customer experience?

It’s mostly about finding a sweet spot between a smooth customer journey and all the requirements coming from different stakeholders around areas such as risk factors.

Many financial institutions are not so brave in terms of challenging the status quo of the current financial conditions. We are doing our best to make bold decisions that might make a difference at the end of the day.

 

  1. You have already started to make the transition to lending 3.0. Why did you want to build a card programme?

Creating a payment card was the logical next step in fulfilling our vision of simplifying daily payments for customers. We started with simple deferred payments “Buy now. Pay later” for e-commerce, but in an age when the overwhelming majority of payments still occur offline, it was necessary to also enter that market and provide an omni-channel solution. The key was to have a better app and overall experience than traditional card issuers.

This was demonstrated in our recent launch of the Twisto app and card offering in Poland, which has been well received by customers, with over 70,000 sign ups and over 20,000 cards ordered in the first 30 days from launch. We are very pleased with the speed of execution through this launch, and strategic partners like Mastercard and Marqeta have been fundamental to enabling the success of the technology. We look forward to exploring expansion opportunities across the EU on the back of this solution.

 

  1. What’s your vision for your card programme and how it will help you solve your challenges and deliver a better customer experience?

At Twisto we believe that having a plastic card in your wallet is already outdated. Because of this, we’ve committed to our goal to stop issuing plastic cards by 2025. We believe that the future is paying with mobile phones. Thanks to Marqeta and our Digital First certification from Mastercard, we’re one of the first companies in Europe, or even the world, who doesn’t have to issue physical cards.

 

Continue Reading

Interviews

MAXIMISING THE SPEED OF RECOVERY: ALLOCATING CAPITAL EFFECTIVELY

Simon Bittlestone, CEO of Metapraxis

 

How has COVID-19 impacted businesses’ financial plans?

The uncertainty thrown up by the COVID-19 pandemic has meant that many businesses have been feeling the strain and extra pressure on their cashflow. While measures such as the Coronavirus Business Interruption Loan Scheme (CBILS) were put in place, for some businesses, these have been ineffective in providing much needed liquidity. This has affected smaller businesses significantly, as they are much more likely to default on loans than their larger counterparts, and therefore less likely to have a loan approved.

In April this year, a survey showed a pessimistic outlook for SMEs predicting that many would run out of cash in as little as 12 weeks. Taking into account various other factors at the time, Metapraxis predicted this time frame could be shorter still, giving certain businesses just 6 – 8 weeks.

 

What do you think the next few months hold?

While the outlook of businesses may have changed continuously since the beginning of the pandemic, it would be naïve to think we are out of the woods. The worst of the economic recession is still to come, so good allocation of capital and effective management of cashflow is now more  important than ever.

 

What factors do businesses need to consider in order to effectively optimise their strategy?

Financial results depend on how businesses split their capital across different strategies, projects, products or services, as well as various regions. Clearly it would be beneficial to back the most profitable service lines in a time of financial uncertainty, but in order to get this right, businesses need to consider three main points: multiplicity of inputs, complexity of comparison and multiplicity of output.

Multiplicity of inputs looks at the number of assets that can be supported. The more assets there are, the more complex the challenge of coordinating capital allocation appropriately. Tied in with that, a business also needs to be able to realistically compare one asset’s return with another’s. This is the complexity of comparison; it is hard for the board to choose which assets to support if they are not directly comparable with each other. Finally, and perhaps most obviously, all of this needs to fit into the overall goal of the business, and what areas it is trying to maximise.

To add to this already difficult process, multiplicity of output is going to change dramatically over the coming years, as companies begin to consider other factors such as climate impact, employee wellness and social responsibility as outputs.

 

What should businesses be focusing on in the short-term?

Businesses must focus their efforts on financial return. Doing so is a key part of any businesses’ recovery from financial hardship, even if they are caused by unpredictable ‘black swan events’ such as coronavirus.

Many things remain fixed in a short-term model. During recovery from such events there is not generally time to create a whole new product line, or explore a different service, although some more agile businesses have of course been able to achieve this. Building a top down model of the business is therefore key in order to streamline processes and manage cashflow, providing the necessary liquidity to survive.

 

What longer-term changes should businesses be aiming at implementing?

With multiple inputs and outputs to consider, the long-term equation is extremely complex. Businesses often underestimate the importance of building a model that allows directors to see the impact of different factors on profitability and cash flow. The ability to reach long-term goals very much depends on identifying future risks and changes in the market, and being able to react quickly.

This can only be done by analysing historical return on investment by business unit, region and product or service, and applying these ratios to test future assumptions. This allows management to run different scenarios quickly and then test these with operational deliverability. If the management team can analyse how various future scenarios might pan out and what the impact might be on the business, it can use this information to make better decisions.

Any company that doesn’t have a model like this will find themselves at a massive disadvantage as we approach the next two years of economic recovery andit is the finance team who must take responsibility for rectifying that.

 

What is the key takeaway for businesses who are looking to learn from COVID-19?

Capital allocation has always and will always be at the heart of any business’s operations. This is even more prevalent in times of economic recession when managing cashflow becomes even more vital for survival. When a business has a clear historical overview of its portfolio, how well products or services are performing, and how previous scenarios have affected profitability, it can make more informed decisions when it comes to assessing the impact of an unexpected event.

The ability to adapt to fluctuations is hugely important to the board, particularly the CFO, when it comes to successful cashflow management. Agility in financial planning, good scenario modelling and prudent assumptions will allow a business to better weather most storms.

 

Continue Reading

Magazine

Trending

Wealth Management1 day ago

WHY TRADING FIRMS MAY STILL NEED A LONG-TERM REMOTE WORKING STRATEGY AMID COVID-19 VACCINE NEWS

By Terry Ewin, Vice President EMEA, IPC   ‘Never let a good crisis go to waste’ is a phrase that...

News1 day ago

AURIGA TO MANAGE BELGIUM’S NEW NATIONWIDE ATM NETWORK: BATOPIN.

Batopin signs ATM as a Service agreement with Auriga to run the new network for Belgium’s four biggest banks  ...

Business1 day ago

ALLIANZ BENELUX IS USING GRAPH TECHNOLOGY TO BEAT FRAUD AND BOOST CUSTOMER-CENTRICITY

Amy Hodler, Director, Analytics and AI Program Manager at Neo4j.   Data expert Amy Hodler examines how graph technology is...

Business1 day ago

5 SIMPLE WAYS TO PREVENT A DATA BREACH FROM PUTTING YOUR ACCOUNTANCY PRACTICE OUT OF BUSINESS

By Bruce Penson, Managing Director at Pro Drive IT   As an accountancy firm, you hold a huge amount of confidential...

Technology1 day ago

PRIVATE EQUITY – ARE YOUR NDAS INTACT AGAINST A CYBER SECURITY BREACH?

Owen Morris, Operations Director at Doherty Associates   Even prior to the pandemic, research revealed how over a quarter of private equity professionals...

Banking1 day ago

THE ART OF BIOMETRIC PAYMENT CARDS: WHY BANKS NEED TO GET DESIGN-SAVVY

Lina Andolf-Orup, Senior Director at Fingerprints   Biometric payment cards have ticked several important boxes in the last year. The...

Finance2 days ago

OPTIMISING YOUR FINANCE THROUGH TECHNOLOGY

Covid-19 restrictions and ongoing uncertainty have prompted a fundamental switch in mindset across a multitude of different sectors. Many organisations...

Technology2 days ago

PROTECTING YOUR IDENTITY WITH A DIGITAL DOPPELGANGER

By Joe Bloemendaal, Identity Futurist at Mitek   Doppelgängers tend to make us think of evil twins and a token...

Finance2 days ago

THE FUTURE OF FINANCE LIES IN THE CLOUD

Author: Chris Tredwell, Enterprise Business Development Manager,Aqilla   At the beginning of 2020, 87% of public sector organisations surveyed by...

Finance2 days ago

PAYMENTS PREDICTIONS IN A POST-COVID-19 ERA FROM RADAR PAYMENTS

Jane Loginova, co-CEO & co-founder at Radar Payments   Retailers went digital, but next, they must diversify their payment offering “Retailers...

Wealth Management2 days ago

SECURING INFORMATION THROUGHOUT THE SUPPLY CHAIN – PREVENTING SUPPLIER VULNERABILITIES

by Adam Strange, Data Classification Specialist, HelpSystems    The financial services sector is experiencing extreme disruption coupled with rapid innovation as established...

Banking2 days ago

ORGANISATIONAL ALIGNMENT KEY TO MAXIMISING POTENTIAL OF OPEN BANKING

Lack of internal alignment risks holding financial institutions back from realising open banking potential 70% of C-level executives recognise the...

Business3 days ago

HOW FINANCE FIRMS CAN IMPROVE THEIR CUSTOMER COMMUNICATION IN 2021

Amy Robinson, Senior Brand Development Manager, Esendex 2020 has certainly thrown a curve ball to all businesses across the world,...

Technology3 days ago

HOW FINANCIAL INSTITUTIONS CAN PROTECT THEIR ONLINE ACTIVITY FROM HACKERS

As working from home becomes the new normal, senior leaders of financial institutions need confidence that their company information will...

Finance3 days ago

2021 TRENDS: TECHNOLOGY CONTINUES TO TRANSFORM FINANCIAL SERVICES

By Angus Panton, Head of Banking and Financial Services at Expleo   Angus is responsible for leading strategic client relationships and...

Top 103 days ago

2020: THE PARADOXICAL YEAR THAT HAS RESHAPED THE FUTURE OF MOTOR INSURANCE AND RELATED SECTORS

By Alan Inskip, Tempcover CEO & Founder   There’s no doubt that 2020 will be remembered as the year that...

News3 days ago

EIS INTRODUCES USAGE-BASED INSURANCE SOLUTION THAT UNIFIES PERSONAL AND COMMERCIAL CAR USE FOR CONTINUOUS COVERAGE

Includes Ridesharing Solution Enabling Insurers to Cover Drivers Based on How Far, How Well, When and – Now – Why They Drive   EIS, a core and...

News3 days ago

ONGUARD WELCOMES ADRIAAN KOM AS CHIEF COMMERCIAL OFFICER

Onguard, the fintech company dedicated to the order-to-cash process, has today announced it is welcoming Adriaan Kom as its new Chief Commercial Officer. Responsible for overseeing...

News3 days ago

NETTING IS A PRIVILEGE NOT A RIGHT

It is nearly a year since the European Central Bank (ECB) introduced its new process for the recognition of netting...

Finance3 days ago

IN THE AGE OF ‘NEAR ME’ SEARCHES, FINANCIAL SERVICES MUST LEVERAGE TECHNOLOGY TO WIN NEW CUSTOMERS

by Paul O’Donoghue, VP solution engineering, Uberall   The coronavirus pandemic has seen a dramatic increase in digitalisation across all aspects...

Trending