Leasing is undergoing a sea change as
the giants of asset finance integrate factoring and invoice
discounting. So is it time for the industry to redefine itself?
Fred Crawley reports
At Leaseurope’s annual convention in
Prague in October, ex-ING Lease CEO Alain Vervaet posed the
question: “Should the European leasing industry consider
redeveloping itself as an asset-based finance industry?”
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The question hit on a salient issue. It has
since emerged that a number of leasing companies are adding
factoring and invoice discounting (ID) to their portfolios. Those
involved in this process, which will potentially add millions of
euros to balance sheets, include GE Capital, Close Asset Finance,
Crédit Agricole and Lloyds TSB Commercial Finance, as well as
several smaller players.
GE Capital’s integration, just completed after
a year-long process, brings fleet, contract hire, business lending,
factoring and equipment finance under one roof.
Earlier this year, CA Leasing and Eurofactor
launched a similar joint project with the aim of increasing
potential revenues and combining their support functions.
Moving the two units closer together makes a
lot of sense – both CA Leasing and Eurofactor are profitable
businesses that continue to grow despite the current downturn, and
there is no doubt the two businesses have back-office functions in
common which they could easily share.
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By GlobalDataAlso, Close has just launched Close Commercial
Finance (CCF) which brings together its leasing arm, Close Asset
Finance, and the bank’s factoring business.
Meanwhile, Lloyds TSB Commercial Finance
(LTSBCF), which absorbed Lloyds TSB’s asset finance business six
years ago and now supplies 22 percent of the UK’s invoice
discounting, is now absorbing the old Bank of Scotland Cashflow
Finance business.
Last month, the results of a UK business
intelligence survey conducted by Ipsos MORI found the proportion of
SMEs claiming to use asset finance had crept up from 16 percent to
only 17 percent between winter 2008 and summer 2009. The proportion
of businesses using invoice discounting, however, shot from 12
percent to more than 16 percent, a 33 percent increase.
No surprise, then, that 55 percent of
respondents to Vervaet’s question answered “Yes, we need to broaden
our scope to satisfy customers going forward”, and 24 percent said
they had already widened their product portfolio to include
asset-based products in response to the recession.
At Close, the integration has involved
training for staff on both sides of the integration, aimed at
promoting recognition of leasing customers’ needs for invoice
discounting, and vice versa.
Mike Barley, who runs Close’s leasing and
factoring arms, said he has seen particularly impressive returns
from its ID customers, and plans to offer ‘packaged’ deals
incorporating both leasing and factoring.
A major advantage to packaged deals is the
demand for multi-product support from distressed companies – a
client sector that is set to keep on growing in 2010. For ‘phoenix’
firms, for example, a solid ID facility is often what seals the
deal in terms of a risk decision on plant finance.
No surprise, then, that CCF is seeking
business introductions from insolvency practitioners and
restructuring advisors, forming a partnership with the Institute of
Chartered Accountants with this aim specifically in mind.
Centric Commercial Finance is a newer lender
with invoice discounting at its core. It has excelled in a combined
offering, growing steadily through lending primarily to
disillusioned clients since its timely inception on the eve of
2007.
Sales director Andrew Rutherford explained
that, unlike at CCF, asset finance is a relatively small part of
Centric’s lending and often used as a ‘bolt-on’ facility to invoice
discounting. It is most commonly used, he said, to refinance
clients’ existing assets in order to release liquidity.
Centric’s lending is about using complementary
products to keep struggling businesses alive where traditional bank
facilities have failed, and this works because of its very close
relationship with clients. Communication with customers occurs at
director level, with in-depth discussion of business needs on a
monthly or even weekly basis.
Furthermore, said Rutherford, should a client
fail, Centric is usually in a good position to take some control
over the business and recover its position. With this extremely
hands-on approach, Centric rides the line between an asset finance
provider and an invoice discounter.
This intimacy, however, cannot be scaled up to
the size of a volume lender. For the largest bank subsidiaries,
even the teething problems faced by CCF are dwarfed by the question
of how to acclimatise a mass frontline sales force with an entirely
new product set.
For this reason among others, large-scale
combined lenders are rare. RBS’s Invoice Discounting business runs
completely independently of asset finance giant Lombard, while
Bibby Financial Services, held in high esteem as a factoring
provider, supplies leasing through a separate business. ING Lease,
which absorbed ID into many of its country operations back in 2006,
last year planned to carry out such an integration in the UK as
well. A spokesperson last month said this was no longer on the
agenda.
Most interesting on this level, perhaps, is
LTSBCF, which is now absorbing the old Bank of Scotland
business.
Ian Byers of LTSBCF explained: “Sales teams
are specialised in particular facilities, and cross-refer
opportunities to each other. Furthermore, they work with bank
relationship managers at a local level.
“Supplementing this are further specialist
teams – ‘fast track’ telesales teams for simpler asset finance
deals, dedicated debtor insurance teams, dedicated supplier finance
teams, and specialist big ticket asset teams.”
LTSBCF has deployed its specialisms well, but
Byers admitted the leasing and asset finance products on offer are
fairly “vanilla”. But then again, LTSBCF is much more of a player
in the ID sphere than it is in the world of leasing.
