Other sections in this guide:
The numbers - pricing, business introductions and commission and accounting
*Please note though that this is not intended to be an exhaustive list of the issues to be considered nor is it meant to constitute any form of advice to you. As far as we are able, we exclude all liability for any reliance you or any other party may place on the information and you should seek any specific advice that you feel is necessary to help you make an informed decision.*
The good thing about being a funder is, you get to set your own pricing and manage the margins – remember you’ll need to provide fair value to the customer and review your pricing framework regularly. If you are funding from cash flow then you will need to be mindful of the price you pay the finance company that funds your block finance.
If you are using an overdraft to fund the initial payment to the supplier and then batching up your agreements to sell as a block, you will need to consider the additional overdraft costs when you work out your pricing.
Business introductions and commission
If you become a funder, you might find the additional duties take up much more of your time meaning you have less time to find more business. To help grow your business, it’s good to decide early on if you’ll accept introductions from other brokers and suppliers.
If you do accept business from other intermediaries, you may want to vet them first and decide how you monitor them. It may be a good idea to setup a trading agreement with each of them to ensure they adhere to your requirements. In your trading agreement you may want to outline how you will monitor them, the FCA permissions they require, their complaints procedure, how they deal with vulnerable customers, commission disclosures, website requirements, and whether or not you will allow them to conduct asset inspections,
You may also want to incentivise brokers and suppliers to bring you business by offering commission. Often an uncomfortable thing to do, but you’ll need to decide if you’d want to agree a commission refund if the agreement terminates before you have recovered the commission amount agreed.
As the book grows, keeping track of the income, expenditure and accounting for the profit will hopefully become a greater challenge. A challenge which may make it unmanageable for one person to deal with, especially with accounting being a very complex task. Another decision you will have to make is whether your system will have a built-in accounting tool and whether it will handle your VAT and tax computations or whether you will outsource to a third party.
It’s also worth bearing in mind that you’ll need to be able to accept Direct Debit payments from your customers. You’ll need to comply with the BACs rules and will need approval from your sponsored bank.