Is it the end of lengthy contracts in Invoice Finance?
We are seeing more and more lenders moving towards a 28 day rolling contract.
Historically, lenders would sign clients up to a 12 month contract with a 3 month notice period. This was done on the basis that lenders costs were front loaded so they would recover these costs in an orderly manner over a 12 month period. However, with the introduction of the various upfront fees that can be charged, such as set up fees, survey fees, legal documentation fees to name a few, these upfront costs are arguably covered. As such there is no real need for the lender to tie a client in to a lengthy contract other than to protect their own position.
Good news for borrowers
This is good news for borrowers as it gives them increased flexibility to exit an invoice finance facility should things change. It also means that lenders will no longer be able to hide behind the contract while offering poor service levels or restrictive funding.
We have written in other posts the impact of termination fees when clients want to exit a facility early due to poor service levels or restrictive funding. At this stage, the lenders that we would view as the main culprits in this regard have yet to move to a 28 days rolling contract. They are probably enjoying making money for nothing by charging termination fees or using coercion to retain clients.
I think as other lenders see that transparency and fairness will win in the long term, other lenders with a far more ‘short term’ approach will be swept along by the tide. Market forces are likely to be more effective than self regulation.