IFD Newsletter – Issue 1 October 2008

Message from the IFD outgoing Chairman, Peter Fitzpatrick

Dear reader, this is the first of our quarterly, online newsletters. If you believe it includes articles of interest for your staff or your clients, please feel free to distribute the newsletter as far and wide as possible.

The aim of these newsletters is to keep you updated on events in the IFD calendar, updates on our academic program, the latest Australian and New Zealand Debtor Finance figures, regulation and legislation affecting our industry, interesting articles as well as relevant and pre-approved opinion pieces from members and affiliate members. In our first edition we have a piece from Nick Samios, NSW State Manager for Cash Resources Australia. If you or a colleague have a relevant industry related article you would like to submit, please email it to newsletters@factorsanddiscounters.com

I would also like to take this opportunity to introduce Brendan Green as the new chairman of the Institute for Factors and Discounters. Brendan has heaps of experience in the industry and I would like to wish him all the very best in his new role.

Happy reading.

Brendan Green, incoming chairman of the IFD

As incoming Chairman it is appropriate that I acknowledge the significant contribution of Peter Fitzpatrick, who has contributed much time and energy to the position of Chairman over the past year.

The past year has been one of great change for SMEs with climbing interest rates, tightening credit markets and easing demand for goods and services. As an industry, however, IFD members have continued their seemingly boundless growth in turnover. Receivables financiers now contribute more than $66 billion in funding to SMEs in Australia and New Zealand per annum and the importance of the industry to the funding of SMEs is broadly recognized.

Whilst Invoice Discounting has clearly been the key driver of growth within the industry, the benefits of Factoring continue to be recognised particularly for smaller businesses which outsource their debtor administration.

Factoring and Discounting, perhaps best jointly referred to as Receivables financing, has always been recognised for the benefits it offers a growing business. Finance is made available often up to 80-90% of outstanding accounts receivable. As sales grow so does the value of receivables and the level of funding available to the business – all of which is a compelling structure for a growing business. The fact that the funding is secured against the accounts receivable of the business rather than bricks and mortar is another key benefit for Directors. This allows the business to be self funding rather than shackled to the external assets of the principals.

Whilst organic sales growth has been a key driver of the growth in receivables finance, what is increasingly being recognised is the application of receivables finance in funding what I refer to as the “big event” opportunities for business. These include major structural change such as management buyouts, partner buyouts, acquisition of competitors (or complimentary businesses) and expansion into new product and business lines.

These “events” can dramatically change the scale and profit potential of the business-but require significant and immediate levels of funding. As a result, business advisers are turning to receivables as a key source of this funding. The benefits are immediately apparent in the case of an acquisition. The acquiring entity can leverage its own receivables and subsequently the new receivables created by the target company post acquisition to meet the increased cash requirements of the group.

Receivables finance either as a stand alone product or as one component of a broader financing package can provide new horizons and new opportunities for SMEs. This is particularly the case for businesses with stronger balance sheets which are looking to effect acquisitions over the next year when asset prices will be undervalued.

For those in the Factoring and Discounting industry these transactions provide great satisfaction as the benefits in terms of scale and return to our customers is immediately apparent. In turn these customers become advocates and promoters within their business circles for receivables finance.

Whilst the global credit crunch will make the sourcing of funding for some businesses tougher over the next year, SMEs will be keen to ensure they have a relationship on which they can bank with their cash flow financier. The nature of receivables financing is unique because of the closeness of the relationship between customer and financier. We are in daily touch with fluctuations in sales orders, invoicing and payment cycles that effect the day-to-day cash cycles. We are deeply engaged in the management strategies as well as the goals and aspirations of our clients and it is this understanding which gives us the confidence to lend against the trading assets of the business.

A key point to recognize is the learning opportunity afforded to our staff through the exposure to a wide range of businesses. It is this experience that keeps our days challenging and interesting. But to continue our growth we will need to attract and retain the best and brightest talent and I can assure those looking to enter the industry that they will enjoy a great learning experience and tremendous career development opportunities.

2009 promises to be a year with some great challenges and no doubt a few hiccups but on the whole the indicators are that we can look forward to a year of continued strong growth. I look forward to working with the IFD and its members in the year ahead.

Brendan Green

Some stuff you didn’t know about the new IFD chairman…

Brendan Green profile questions

Birthplace?
St Margarets Hospital Sydney.

Favourite movie?
Big Wednesday. It came out in 1979 but seems like yesterday.

What is the worst movie you paid to see in a theatre and sat right through it?
My wife Jill drafted me to see Howards End – must have been a 4 hour movie, the perfect cure for insomnia.

Favourite book?
A Fortunate Life by AB Facey. Any biography.

Favourite TV show?
Yes Prime Minister.

Favourite website?
Much to my family’s disgust have recently taken up the guitar – so it would be Guitartab.com

Favourite music artist?
Hard to pick one but The Angels, Mark Seymour, The Gunners would all be there

Favourite song?
Sweet Child of Mine.

Three words to describe yourself?
Stubborn, resourceful, persistent.

What talent would you most like to have?
A singing voice – fortunately I’m tone deaf so it’s everyone else’s problem

What do you consider a good weekend?
Anywhere surfing with my two girls.

Your guilty pleasure?
Chocolate and red wine.

What were some of your favourite cartoons growing up?
The Flintstones, actually the theme song to the Flintstones was the first tune I strummed on guitar. My wife Jill announced proudly to friends that I could now play the “stones”. She thinks she’s funny.

What word do you always misspell?
I'm not a good enough speller to identify my errors.

Passion outside of the office?
Golf, surfing, kids and my lovely wife – not necessarily in that order of course.

Profession outside of factoring and discounting you would most like to be doing?
Professional golfer.

First client?
A nursery up near Lismore. Great people who were extremely patient as I fumbled my way around their requirements.

Work accomplishment of which you are most proud?
Building a new team in my current role at St George and enjoying their progress.

Best business moment?
Probably a celebration dinner held by a new client for whom we had just funded a large and complex acquisition. Everyone involved in the deal was invited to the dinner and the client went around the table acknowledging the contribution of each individual at the table. A classy thing to do.

Words to live by?
Do unto others as…and an eye for an eye – twists of a similar theme both of which work for me.

What did you learn about yourself this year?
I now have to hold my book at full reach to read the text (but I definitely don’t need glasses!). In a business sense I’m concentrating on asking the right questions as a means of channelling the expertise within our team on the issue.

Life long dream?
To go surfing with my grandchildren – so far so good.

Debtor Finance Index

Click here to see the latest Debtor Finance report (PDF: 1mb)

PPS

In March this year, the IFD hosted Australia Attorney-General, the Honourable Robert McClelland MP, at a lunch where he re-affirmed the Federal Government’s commitment to Personal Property Securities (PPS) reform and hinted that a draft bill would soon be ready for public comment. 

He is a man of his word and on 25 July 2008 the IFD sent in its submission on the PPS 2008 bill.

IFD education module

Over the past few years, members of the IFD have worked at collating a course on factoring and discounting which is accredited and run under the auspices of the Australian Institute for Credit Management (AICM).

Despite the fact that our industry turnover is now over $66 billion per annum, there is little or no information included in the financial, business and accounting curriculum throughout Australia. The IFD has decided to take this further and has embarked on an educational contact program with leading tertiary institutions. Through this program, the IFD is proposing these institutions adopt the IFD factoring and discounting module for its courses.

Click here to see an initial list of institutions we have approached (PDF: 37k)

Find out about the next IFD courses our new online course

• The online course Introduction to Factoring and Discounting costs only $115 for IFD members and is now available. It is run in conjunction with the Australian Institute of Credit Management and all registrations can be done online via the AICM at www.aicm.com.au
• The IFD training course Factoring and Discounting in Australia conducted in conjunction with the AICM was held in Sydney on 25/26 September, it will be run in Melbourne on the 23/24 October and in Brisbane on 13/14 November

Opinion piece from Nick Samios, NSW State Manager for Cash Resources Australia 

Home truths won't save Wall St

Would Wall Street be in this mess now if George Butler had been in charge? George Butler was the Credit Manager at AGC Liverpool in the mid eighties. He was a man as famous for his sharp wit as he was his almost unintelligible Scottish accent. When a loan proposal was put in front of him that did not “stack up” he would reject it by pushing it back across his desk and chortling in his thick Scottish brogue “I'll not be paying for that”.

George was my boss's boss when I started at AGC in the “motor collections” department. Everyone started in “collections” back then, because finance companies in those days had a simple philosophy that you could not be trusted to lend money out unless you could first prove that you had developed the skills to get it back again. And it was hoped that after a couple of years of struggling to get money back on the tougher files, you would learn what not to do when it was your turn to write the cheques.

It was a horrible experience trying to collect money from people who should never have been loaned it in the first place. I remember phoning one woman in particular who I was chasing for late car repayments. She told me “I have three potatoes to feed four children and I'm trying to work out who misses out”. After phone calls like that, my colleagues and I would shake our heads and ask how anyone could have signed off on the loan in the first place, and vowed never to do that ourselves.

But here is what happened next. As the eighties rolled into the nineties, the “new business” or “acceptance departments” of financial institutions started to fill up people far too clever to ever have to work in the collections departments. As “on the job learning” gave way to “graduate trainee programs”, a stint in collections was reduced from a couple of years to a couple of weeks.