Callum Dunbar, Dancerace:  Hello, and welcome to another episode of The Ledger - hosting conversations on lending, finance and technology with the brightest minds in the world of working capital and beyond.

Our usual host, Elliot, is on holiday this month, so today’s episode is hosted by me, Callum Dunbar. I head up the Sales and Marketing here at Dancerace, and in today’s discussion, I’m joined by receivables finance publisher and speaker Michael Bickers.

Michael is the founder and director of BCR Publishing. In our chat - which lasts around 30 minutes - we take a whistle-stop tour of working capital over the past two decades, up to the pandemic. We also discuss the importance of community in the world of lending, and Michael gives his thoughts on the future prospects for the sector. 

Enjoy!

CD:  It's a beautiful autumn day here in the Southwest of the UK. It's 4th November, the US is locked in a historic election battle. We're going to be talking about politics shortly, but I want to first introduce our interviewee; Michael Bickers, the Founder and Director of BCR Publishing. 

Michael is one of the best connected men in working capital across the globe and his publications are must reads for the industry. We were lucky enough to be at the RFIx event earlier this year before Coronavirus turned the whole world upside down. We learned a lot and met a lot of interesting people which always happens at BCR events. Thanks for joining us, Michael.

Michael Bickers, BCR Publishing:  Yes, hi Callum, thank you. Thanks for that very nice introduction and your kind words. I'm not sure everybody would agree with them but yes, I do like to think that myself and as a company we are well connected – something that has been built up over 25 years of working in the sector. One of the great things about working in this sector is that you meet a lot of different people and it makes the whole working environment very pleasant. 

That's one of the things I've noticed about this industry. We've dipped into other sectors as well like venture capital and leasing in the past, but this is a particularly friendly industry and people do like to talk to each other and exchange ideas and thoughts. 

CD:  I think you're right. I've certainly noticed coming into the sector myself how warm and welcoming the reception has been and we're going to talk in a little while about the importance of community and about networking particularly in the post-pandemic world. 

Before we get there, I wondered if you could give a brief, potted history of BCR publishing – both our companies go back a long way.

MB:  Yes, sure. In fact, myself and Dancerace go back before BCR. BCR started in 1993, but I knew [Dancerace] chairman Anthony Avison before that. I knew Anthony when I was working in the industry, must be 30 years ago, with RDM Factors.

That was a few years before I started BCR in 1993 with our first publication Factoring in the UK. That was borne out of a need for some in-depth information about the factoring industry in the UK. It was still quite a young industry then and I took several months putting that report together. When I published it, it sold pretty well and that was the start of BCR. 

Following that publication, we were approached by HMSO which at the time was the government publishers, Her Majesty's Stationery Office, and we ended up publishing the next 2 editions of Factoring in the UK through them. We did another couple of publications with them – one on venture capital and one on leasing and so – until they were privatized. At that point, I went back to publishing directly as BCR. 

Over the next few years we introduced our online resource which is now called Trade and Receivables Finance News and in 2001 we started doing events. We started with Receivables Finance International which you mentioned already so that's been going for just over 20 years and in a normal, pre-COVID year we would be doing six, seven or eight events per year. Some in Europe, some in Asia and some as masterclasses and seminars. Today there are three strands to the business: events, publications and our online resource, TRF news.

As you said earlier, we’ve built up a very wide network of individuals around the world. These are mainly senior people within the receivables finance sector and we work with institutions like EBRD, IFC – part of the World Bank – the ICC, other multi-national development banks. We're pretty well connected and our focus is still on receivables finance – that's mainly factoring and supply chain finance. Supply chain finance has, as you know, sprung up in the last 10 years or so and we're also dipping into securitisation a bit as well and that seems to be growing in interest and expanding in the space. 

CD:  It goes without saying that since 1993 you will have seen a lot of the major shifts within the industry, not just in the UK, but globally. What are the three big shifts that you've seen in that time and in particular over the last decade that have shaped the way that receivables lenders are working today?

MB:  I think probably the biggest and most obvious one is technology and I'm not just saying that because I'm talking to you representing a technology company but I really, really, really do believe that and I've said this to many, many people that in this sector we've seen more growth evolution and development in technology in the last six or seven years than we've seen in the last 60 or 70 years in the sector. 

There has been a rapid escalation of that and it really has had a big impact and is having a big impact on the sector and will be hugely significant in the evolution of this sector. That could be through Blockchain – I think the jury's still out on that – and digitalisation certainly will have a major impact moving forward, as will many other aspects of new technologies that are coming through. 

Second, generally speaking, I think the sector is attracting larger businesses whereas before it was almost exclusively used by SMEs. I think now it still, certainly the majority of end users are SMEs, but I think there are more mid-cap sized companies using receivables finance.

That's a change and if I can combine that one with growth as well. In the last ten years the sector has seen very substantial growth in terms of volume and numbers of businesses using receivables finance. I'm talking globally now, not just in the UK, where in the UK the growth has not been quite at the same level as we'd seen going back six, seven or more years ago. 

I think the other thing that's worth mentioning out of the three is that the sector's become much more mainstream and I think we've seen that in a big way in the last four or five years. It's no longer seen as a secondary form of business finance as it was before. I think it's very well known now in the UK and many parts of Europe and other parts of the world and is being recommended as a primary form of business finance these days. 

Rather than banks saying 'right, you need an overdraft or you need a term loan', they'll say 'you need invoice finance' before they mention the other two. That's very encouraging for the future and there is still a long way to go. There are very few markets I think that you can say are saturated in this sector. I can't think of one, actually. Even the more mature markets like the UK, Italy, France, Spain, the US, I don't think any of these markets are saturated. There is still a very significant way to go I think in this industry in general. 

CD:  I'd agree with you there. I think those are, yes, all key shifts and what's interesting to me is that the pace of development changes from country to country. What's also interesting – and this is thinking about fintech and fintech investment – is whether the fintech spotlight is going to move on to receivables lending and working capital lending, business to business lending. What do you think?

MB:  I didn't mention fintech as well as the three or four major shifts but it would be in the top five definitely and in terms of the spotlight, I think after the banking crisis in 2008/2009 the spotlight did shift significantly towards the receivable as an asset class and as a basis for finance. 

During the banking crisis a lot of the assets that caused a lot of problems all came to the forefront and as a result of that I think the receivable as an asset also got pushed forward but in a positive way. All of a sudden it came to the attention of a lot of people and a lot of sectors where it hadn't before. People recognised its stability and low risk, and so we saw investment sectors and bodies looking at receivables finance and the receivable much more than we did before the banking crisis. 

And, let's face it, the sort of things they were looking at was receivable as a short-term asset, it's self-liquidating, and as I mentioned it's pretty stable. In the post-banking crisis period there was definitely an increase in interest in the receivable as an asset and in receivables finance as a form of business finance and we saw a lot of growth in that post banking crisis period and also, as you mentioned we saw the establishment of the fintech market and again, that came directly out of the banking crisis. Just after the banking crisis the banks in general were reluctant to even restrict it in terms of their lending capacity to SMEs because of the new rules that were coming in, regulations, as a result of the crisis the Basel regulations came in.

That made it difficult to the banks to lend to SMEs, in particular, and at the same time interest rates were coming down and it was difficult for investors to find somewhere to put their money where they could get a reasonable return. Some smart people saw that and launched a lot of fintech companies. Bringing together access to finance for SMEs and at the same time providing good investment returns for investors. 

All that was in principle of course, it didn't work out quite that way for all the fintechs. For some of them it has, for some it hasn't.. 

CD:  What do you think we can learn then about those key shifts? We saw what happened post-2008 in terms of increased interest in receivables as an asset class, interest in receivables as a business service for clients. Do you think that's going to happen again, coming out of the COVID crisis?

MB:  I think it won't be the same but there will be things that will come out of this current crisis which will benefit the sector, I think. 

I think we will see – as we saw coming out of the banking crisis 2008/2009 – a renewed demand for receivables finance because as we come out of the crisis working capital will come under pressure. As businesses get back into the swing of things and their sales start to increase and they're restocking, yes, working capital will come under pressure and there will be a greater need for working capital finance. So, I suspect to see some nice increases in volume as we come out of our current position. 

Having said that, I'm not quite sure what the current position is at the moment. I'm getting mixed reports about volumes in general. I speak to some people and they say, 'yes, generally there is a reduction in volumes in factoring at the moment', which one might have expected and predicted but on the other hand I was speaking to one of the major banks in supply chain finance a couple of days ago and they were extremely busy at the moment. I'm not quite sure what the overall picture but it could be that it's not nearly as bad as it was during the banking crisis where we saw very significant reductions in volume for a couple of years over that 2008/2009 period. 

To answer your previous question more fully in terms of what have we learnt: I think the fintechs have been a wakeup call for the more traditional providers within receivables finance, particularly factoring, and there has been more of a realisation that what clients want is quick and easy access to finance and what they don't want is contracts where they're tied in for long periods. What they don't want is minimum annual fees; they want a quick process in terms of getting access to finance. In other words, the take-on process needs to be quick and ideally they want to dip in and dip out and not necessarily be tied in on a whole turnover basis. 

The other thing I think that has come out of it – and this has been a bit of a learning curve, not only for the traditional providers, and that's primarily the banks but also for the fintechs. I think the fintechs were, to a large extent, a bit too optimistic about what they thought was going to be the disruptive nature of what they were offering and it hasn't turned out to be the case to a large extent. What the fintechs are now looking at and I think what the banks are beginning to realise now as well is that perhaps the ideal way forward is a form of collaboration. 

The banks have the status and credibility which is something the fintechs have always lacked and that's been something which has been a problem for them in terms of expansion. The fintechs have access to very speedy development and new technology and it would take the banks a lot longer to develop some of this and that's all beginning to be realised in the last two or three years. I think we'll see a lot more collaboration between the fintechs and the banks moving forward because they've both got very good bits to add together to create some decent .

CD:  That's music to my ears because that's what we do here at Dancerace, I think the other thing that, of course, banks have that fintechs don't have is the capital to lend.

Do you think then the working capital lenders are responding positively? What has their response been do you think over the last 6 months to the COVID pandemic?

MB:  Well, it's difficult for them because on the one hand they're under pressure to support SMEs and I think they are being a lot more supportive than they used to be. If you look back at the previous crisis and even more so the crisis before that which wasn't such a deep crisis but 1990, 1991 the banks were just pulling the rugs from underneath SMEs overnight very often and facilities were just being withdrawn without any warning and it really caused a lot of problems for SMEs and the banks were being looked at very negatively by everybody – including the government.

There wasn't so much a repeat of that in the banking crisis of 2008/2009 but this crisis there is a lot of support from the government, of course, which wasn't there in previous one. I think that's helping the whole position very significantly and the other thing to bear in mind is that the banks themselves are much better prepared to provide support and to try and provide finance to businesses because they're much better capitalised because of the regulations that came out as a result of the banking crisis. 

This crisis is quite different to previous crises in that respect and thankfully those those Basel regulations came in and I think a lot of people will be saying 'well, the regulators have been proved to be right', because there was a lot of criticism after the banking crisis and a lot of people saying that the regulators had gone too far the other way in terms of extent of regulation. This current situation is certainly an argument in their favour. 

CD:  What do you see lenders investing in right now in order to prepare themselves and deal with the COVID crisis?

I'm not asking you to talk about technology there, it could be operationally it could be more people on the ground because this is the thing, I think, because while we are technologists here at Dancerace and this is something that we spoke about on the panel at RFIx back in March, we're absolutely aware of the importance of people for good lending. 

MB:  Well, I think certainly this crisis and the last one have been huge drivers in the use and development of technology. I think there will be a drive towards efficiency, to lower costs. 

There are other factors coming in which are causing it as well like the trade wars and the trend towards de-globalisation and that's driving automation as well but banks want to do their best and finance providers in general want to do their best to do what they can to support businesses because at the end of the day they don't want to lose these businesses. They want them to come out the other side of this crisis and stay as clients for a long time and on the other side of that, of course, they've got to look at the risk situation and the risk environment so they've got that difficult balance to consider. What they’re looking for is for technology to help with the risk management position and also looking for ways they can make their products more efficient. 

That's all medium and longer-term stuff. In the immediate future, they've got to watch out for things like fraud which is quite likely, if not already, to be rearing its ugly head. As businesses come under more pressure, the temptation to raise invoices before goods or services have been delivered is getting stronger all the time, or will be. We haven't seen the worst of this situation yet, I suspect, and government support is being extended and extended but the level of support is gradually getting weaker and when we get to the early part of next year, I can't remember when the scheme ends, the grant scheme anyway, ends, I think, in April. If the COVID situation hasn't been dramatically resolved and reduced by then that's when we're going to have quite a serious situation on our hands and the receivables finance providers are going to be very concerned about what happens at that point. 

CD:  Earlier on in the conversation you suggested that the outlook was largely good for lenders. Would you say that actually it's more of a mixed bag? Some of these more structural challenges they've got to be addressed in order for lenders to take advantage or survive and grow from this pandemic?

MB:  Yes, I think so. I mean, longer term, yes, there is a very good outlook for this sector but over the next few months it could well be very tough-going and we don't know, of course, how things are going to pan out. 

We can only hope that things will get better, hopefully when the weather gets warmer and maybe we'll have a vaccine. Until we're more sure about how things are going to play out, I think providers are going to be looking at their systems to make sure they are maximising efficiency, keeping their overheads down, making sure that their staffing levels are running as efficiently as possible and making sure that their risk management procedures are as tight as possible. 

CD:  I want to shift the conversation on now to delve into community and network within the sector. What has the COVID crisis meant for BCR Publishing?

MB:  Well, as a small business we've had to be very careful about our approach to things. A lot of the things I mentioned as factors have to be paid heed to applies to us. We have to try and maximise efficiency; we have to keep an eye on overheads and make sure we're running very effectively and efficiently. 

But, in terms of community well, we've got a very loyal customer base and as we talked about earlier on our network is very strong and we've had a very strong network for a very long time and it's not that difficult for us to keep conversations going and discussions, and to keep in touch with people through use of the technologies that everybody's using now Zoom and Webex and the rest of them. 

What is a bit more difficult is when we're talking to potential new clients and what we would normally do is we'd have a discussion over the phone and then if we weren't too far away we would arrange a physical meeting and, of course, we can't do that now. So, in terms of new clients and new business it's a bit more difficult, one has to do one's best to try and do that online via video calls but it's not ideal. 

Overall we're moving forward and keeping things going. 

CD:  And, in terms of your events agenda, you've made some changes there as well?

MB:  Yes, we've had to cut back generally on the number of events we're doing at the moment and we're focusing on our main events. 

The next one that we've got coming up is our fraud master class in December and because, as I mentioned, we see this as quite timely and we see the risk of fraud increasing in the coming months. In terms of our regular events, the next one is at the end of January and that's Supply Chain Summit. We will be doing that as a virtual event. We've been doing that event for about then years now so this will be the first time we're doing it as a virtual event and that's purely because of COVID.

The next event after that will be our Receivables Finance International event which you attended last time. We don't know whether that's going to be a virtual event or a physical event. We normally do that in March but we're pushing it back to the end of April, beginning of May. We haven't fixed the date yet but we're pushing it back in the hope that we can do it as a physical event but we are preparing ourselves to do one or other. 

We have been impacted quite significantly by the situation and a virtual event will never replace fully a physical event. There are lots and lots of advantages of a physical event over a virtual event which may not be obvious to everybody at the moment but I think they'll become more obvious the longer this situation goes on for. 

CD:  I'd agree with you; I think for building relationships they're particularly valuable. We are going to be appearing again at RFIx next year and we'll also be attending the Supply Chain Summit as well.

Thinking about networking; community is particularly important within the world of working capital. It's very close knit; why do you think that is?

MB:  That's a difficult one, but as we spoke earlier on it's certainly a noticeable one. 

I don't know is the answer, but I would guess it may be due to the fact that the receivables finance sector is still a fairly young industry. It's been around in the UK since the 60s and even though that seems like a long time ago, compared to other forms of finance that still makes it a fairly young industry. I think because of that and because of the way it's been evolving, quite rapidly, much more than other finance sectors. 

That kind of environment encourages discussion and debate and the exchange of ideas and an awful lot of that comes from meeting people at conferences and people are prepared to talk and, as I mentioned, exchange ideas and in a conference-type environment it's much easier to do that.

I remember in the early days of BCR when we surveyed the UK factoring industry and used to ask them for figures for turnover and volume and growth and also pricing for their products; it was much easier to survey the factoring industry than it was to survey the venture capital and leasing industry which we were also doing at the time. I'm not quite sure why that is but I'm assuming that it might be because it's a young, developing and growing sector with generally younger people in and they're just more open about things. 

It was quite refreshing and it's still there, it's still there, I think. 

CD:  That's been my experience moving into the sector; I've been pleasantly surprised by how generous people are with their time, with sharing their specialist knowledge. I think people are driven by the fact that done the right way working capital can be quite a benevolent type of lending because you're getting liquidity into businesses based on their current performance. Certainly, that's what attracted me into the sector I would say.

MB:  Yes, and also, for small businesses you don't need a strong balance sheet to get receivables finance and for many of small businesses, the main asset that they have is their receivables and to have a form of finance that can grow with sales of a business, which factoring does, is such an advantage.

It may not necessarily be the cheapest form of finance but if you're a small, young business and you're in a growth phase you need that working capital and you can't get it to the same extent from other forms of finance – whether that be a term loan or an overdraft or equity finance. Equity is the last form of finance that most small businesses choose, so, yes, there are still lots of advantages for factoring and on a wider basis, further out beyond the UK and maybe beyond Europe, there is still a big need for education. There are still a lot of markets out there which don't really know much at all about factoring or receivables finance in general and that's all also beginning to change, via bodies like FCI, EBRD and other development banks like Afreximbank. There is a big move globally still to educate people about the benefits of receivables finance. 

CD:  And, you're going to be very well positioned to help them I'm sure, right at the forefront of it.

MB:  Yes, I hope so. I'd like to think so and it's also a great opportunity for technology companies to also take advantage of that. We are a supplier to this sector as you are and I think for suppliers to this sector it's going to be good times ahead and the benefits that we've seen in the past will continue and may well accelerate. 

CD:  And, on that note we will leave it there. Thank you very much for your time Michael. We've covered some really interesting ground; the history of the sector, the current state of the sector, your own response and some quite serious thinking about the future for working capital so thank you very much for your time.

Michael Bickers:  No, it was a pleasure Callum, thanks for inviting me. Thank you. 

I really hope you enjoyed my conversation with Michael. 

If you’d like to find out more about BCR publishing, please go to bcrpub.com – and for more conversations on lending, finance and technology, please ‘subscribe’ to The Ledger in your preferred podcast player.

From all of us here at Dancerace, thanks for listening!