Regulation of factoring companies

Unfortunately there isn’t any regulation of factoring companies and equally unfortunately as any knowledgeable factoring insider will tell you, the industry is badly in need of regulation as currently the factoring companies wield far too much power and on the occasions when they abuse that power the poor client has no-one to complain to.

The factoring companies have their own industry association and between them all they hacked out a framework of ethical behaviour that they all agreed to work within. This framework used to appear on the website of the Factors and Discounters Association (now called The Asset Based Finance Association).

Regulation of factoring companiesThis framework included such things as making the transition between two factoring companies as painless as possible in the event that a client was unhappy enough to want to leave. The reality is that if the factoring company doesn’t want the client to leave they will put as many obstacles in the way as possible. There have also been many instances of a bank refusing to release the book debts from their debenture if their client happened to choose another factoring company over their own. Insiders will know that one High Street bank owned factoring company has the worst record in this regards.

In order to fend off the possibility of regulation the major factoring players have desperately been trying to put forward a case for self regulation and if successful it will no doubt have as much effect as self regulation in the newspaper industry did.

At about the same time as the factoring companies decided to put forward their case for self regulation the code of conduct was removed from the ABFA’s website which is an auspicious start indeed.

Unfortunately there are too many complaints about the behaviour of factoring companies to leave the industry unregulated and as invariably the factors have such a tight grip on their clients’ purse strings that they can get away with murder these complaints are rarely investigated or pursued.

In our opinion the factoring industry must be regulated but as the power within the industry is held by the four High Street bank subsidiaries who also happen to be the worst offenders we can’t see self regulation being anything other than a token gesture.