Factoring: How are factoring companies regulated?

Taking out a factoring contract can be a great way to free up capital for your business immediately and taking the burden off your cash flow. It can also save you the hassle of chasing debts. But like all forms of loan and financing agreements, there are charges and potential pitfalls, so it is good to know how the industry is regulated and how you, the consumer, are protected.

UK factoring regulation

The three main bodies that regulate factoring companies and asset invoice financing are:

• The Financial Conduct Authority (FCA)

It is an independent, non-governmental body that regulates the UK financial services industry. They set regulatory standards for the industry to ensure a fair deal for all participants. If you have a complaint about any financial service (including factoring services), which the original provider cannot help with, the FCA is the place to go. If you find yourself in dispute over a factoring contract, then the FSA will be able to assist. Make sure you have checked your contract and have detailed records of all transactions and correspondence.

• The Asset Based Finance Association (ABFA)

It is a trade association for factoring businesses in the UK and Ireland, founded in 1976 when the industry was in its infancy. It currently represents 95% of invoice finance companies with 41 members at present. They are your first point of call when looking for an invoice factoring business, with a full list of members, frequently asked questions, reports and information about other cash flow solutions for your company. They provide a wealth of useful independent information that you can trust. If a factoring company is registered with ABFA, they must abide by a code of conduct which ensures integrity, fair dispute resolution and compliance with all industry regulations.

• HM Treasury

Usually referred to simply as The Treasury, this is the United Kingdom’s economics and finance ministry which oversees all economic and financial matters.

What is the role of The Bank of England?

The Bank of England is the United Kingdom’s central bank and one of the oldest banks in the world. In addition to issuing money it manages the UK’s monetary policy in conjunction with The Treasury. One of its central policies is to enhance the stability of the financial industry in the wake of the ongoing financial crisis. Their commitment to identifying and monitoring risks will have a knock-on effect to how companies issue loans, financing and invoice financing arrangements such as factoring, looking to safeguard the future of issuers and customers.