We sat down with the CEO of Bibby Financial Services North America, Ian Watson, to discover how BFS operates and what the landscape is like in the US for SMEs that seek alternative forms of funding.
Overview, what does BFS do?
Primarily we’re a receivable finance business, but we also offer asset finance. We’re focused around working capital for small businesses, providing B2B finance all over the world, based in 13 different countries, with more than 10,000 clients. We mainly work with small businesses working on open account terms who tend to be waiting 30-90 days to get paid, this is a heavy burden on cash flow, and the more successful you are the more that gap can grow: the more invoices that don’t get paid puts a lot more stress on own working capital. We will advance against those invoices as they are raised, up to 85% to bridge that working capital gap, and as their customers do pay it pays down our interim finance and they get the value of the money.
Are there particular industries that work best?
B2B businesses, we don’t finance consumers/ retailers, but we are pretty agnostic in terms of industry type: we tend to deal mainly with manufacturing, services and distribution companies. We will work with any company that issues invoices on open account terms to other companies, whether that is domestic or overseas.
We cannot work with B2C such as restaurants, however restaurant suppliers we can. Fresh food businesses, for example typically work on shorter time frames, but you’ve still got to wait somewhere between 14 and 30 days to be paid.
Do you feel like a lot of small businesses that are in that world are knowledgeable about this kind of financing and are actively looking for it? Or are they blissfully unaware, going about their business, not realising they could take some of the pressure off.
Awareness is growing. A recent survey showed that 1 in 4 small businesses were considering alternative forms of finance other than traditional forms of finance such as the bank overdraft or bank loan. But they are starting to realise that this type of finance provides more dynamic, it responds in reaction to the speed of your business – if its growing, the financing grows. It is an alternative from banks in that it’s more focused on the quality of the collateral (the receivables) and the pace and the rhythm of the business and where it’s going and how it’s trying to get there than its balance sheet. Banks tend to focus on the historic results, we look more at the future and where the business is going.
A lot of small businesses struggle to get traditional bank finance because maybe they haven’t been in business that long or maybe they had a bad couple of years. When you talk about approvals and focusing on the receivables. What is a good receivable vs a bad receivable?
A good receivable is known as a ‘sell and forget’. There are obviously standard product requirements and liabilities but by and large it’s sold, it’s forgotten, you’ve moved onto the next transaction, which is what many small businesses want.
Does it matter who you’ve sold it to? Do you look at the person who owes the money?
Yes it does, and we know that a lot of small business owners are getting concerned about the economy and there are bad debts out there and bad debts on a small businesses hurt even more. We do some credit research on their customers so they can make more informed decisions about not only who to deal with but to what level. It’s all very well selling products to people that want to buy them, but it’s getting paid that counts. The more you can provide insight into the customers, the more you can help them keep safe. We will provide them with credit protection if that helps, but that’s an optional, we don’t insist on it. Some of the traditional receivable financiers in the US and how factoring grew up in the US was on what’s called a non-recourse basis, you had to buy credit protection for everything, therefore paying higher fees. Most of our funding is recourse (without credit protection), but if a client requires the extra level of protection then we can offer that.
When you’re talking about the process of how it works, they come to you with outstanding receivables, they take a loan from you, but they’re still responsible for collections on their receivables?
We help them with that. We can be an intermediary in the space between selling and collecting, we’ll help with the collections, the ledgering, some clients let us run their sales ledger and at the same time they can draw as much as they need to. We don’t force them to draw money– they can draw as little or as much as they’d like.
It’s still a partnership, we want to have a good understanding of our clients, we want to be close to them, we want to understand what they’re trying to do, understand their relationship with their customer, because we have to protect their relationship with their customer as well.
What about costs? Small businesses may worry that going to an alternative financier like BFS may have such high fees that they’ll get stuck in an endless loop. Is it affordable?
It varies, we don’t have a fixed price. It varies according to the size and the complexity of the business. If they’ve got relatively few customers then the fees are lower, if we’re doing a lot more sales ledger management and taking out a lot more of the costs for them, then our fees need to reflect that. It’s not a fixed cost model as such, it’s based on two things: 1) volume of invoices and traffic going through the facility and 2) how much they want to draw.
When people set up a relationship with BFS can they use the services as and when they need it or is it an ongoing relationship?
Doesn’t tend to work that way. Transport is the exception, particularly owner manager truckers. Product: Freightcheck in Nashville, we’ll push cash onto their fuel card instead of having them withdraw cash. They can come and go a little bit– their business is more flexible and fluctuates between short and long haul loads here and there. But for more traditional businesses we are looking for an ongoing relationship.