The FT reported how consumer credit has risen consecutively for the last 56 months. Unsecured consumer loans have risen for the forst time above their 2008 level. The Bank of England reported bank underwriting standards have loosened. It illustrates the return of irresponsible and risky lending by banks - once again, to earn more profit. If regulators and the Bank of England do not step in to control the risk levels, another crisis could ensue, this time centred on the consumers not the mortgage market.
Consumers do not have the ability to do as companies are able - resort to the use of their invoices to raise cash - a process called invoice finance or debt factoring.
Conventional debt factoring (also known as invoice finance) is a useful alternative to borrowing more debt to obtain cash. It involves the sale of invoices (from credit sales) in exchange for immediate cash. To manage the risk the debtors will not pay for their purchases (credit risk), the factor will purchase invoices for around 80% of their value and pay the balance when the debtor pays, less the factors's fee. The factor will usually also want a debenture over the company's assets and possibly also directors' personal guarantees.
Factoring fees can be of many types including arrangement, servicing, renewal, and credit protection fees. These inevitably raise the all-in cost of factoring for the company, but its benefit are immediate cashflow without adding to debt levels, and transfer of credit risk to the factor (though some factors transfer credit risk back to the company if the debtor defaults).
What is single invoice finance?
Cash for Invoices Limited offers single invoice finance (sometimes called spot factoring or selective invoice finance) - a type of debt factoring that has key advantages over conventional debt factoring and invoice finance: