Thank you for your email.
I hope that you are keeping well.
There would be a technical difficulty with your proposal inasmuch as asset based finance will generally be provided on the basis of debt purchase. In that sense, it is not lending and interest is not charged. So strictly speaking it would be misleading and potentially illegal to use interest rates or APRs.
However I appreciate the underlying point that you are making which is transparency about the overall costs of finance to businesses and that is something the ABFA fully supports.
An asset based finance facility will often be a bespoke service tailored to the specific requirements and circumstances of the client. The two primary costs to a client of an ABF facility will be a service charge and a discount charge; with the latter being payable only on the funding drawn down. These charges will be easily comparable between providers.
There are likely to be other contractual charges that will be specified in the contract to reflect any additional services that a client requests or to cover other events outside the normal running of the facility. Again, these will be easily comparable between providers. The market is extremely competitive and I would always recommend that potential clients shop around to ensure they get the most appropriate facility for them, although the most appropriate facility might not always be the cheapest.
Comparison between a single rate or metric like an APR can work for a standard off the shelf product like a credit card or a personal loan. But for a service-oriented facility intended for businesses rather than consumers, there is a risk that one ends up comparing apples with pears.
A prospective facility needs to be considered qualitatively, not just quantitatively. For instance, there are some client businesses that use factoring for the service element (ledger management and collections) and don’t even draw down funding. What is key is that SMEs understand the options available to them, what the benefits and costs are and are able to make an informed choice. Transparency about the overall costs of finance is key to that and is something that the ABFA fully supports and encourages amongst its Members.
I note that you have copied in Lucy Armstrong, the chair of the Professional Standards Council, which, as you know, is independently responsible for maintaining and enforcing the Standards Framework which all our Members work under. How to ensure transparency in fees and charges is something that the PSC considers on an ongoing basis - if you do have any specific examples or evidence of what you believe is poor practice I would encourage you to bring them to Lucy’s attention.
In the meantime, best wishes for a Merry Christmas and a Happy New year.
Chief Executive Officer
Asset Based Finance Association