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| Changes to our Pricing Structure |
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Statement by David Thompson, Chief Executive, Close Invoice Finance
As valued business partners I thought it important to set out the rationale behind recent changes to our pricing structures. The backdrop is clearly one with which we are all familiar - the banking world having been in flux for nearly a year. Whilst that year has seen peaks of panic and hysteria it is more notably marked out as a period that has witnessed a consistent fall in the supply of credit and consequently by a sustained increase in its price. As a lending business increased borrowing costs clearly have a significant impact on our business. Our initial analysis was that this was likely to be a short lived phenomenon. There would be a painful period of asset write downs for banks swept up in the US Sub prime crisis but that quickly the world would move back to a more normal footing. We decided we could subsidise - and protect clients from - this short term spike in costs. Events have deemed this an optimistic view. As we passed through the summer it became clear that this changed world was likely to be with us at least for the rest of 2008 and probably much of 2009. As a consequence we sought to recover part of these increased funding costs from our clients. We instigated a round of price increases in July and August that recovered 40% of our inflated borrowing costs. Over recent weeks we have come to the settled view that the increase in borrowing costs - despite the best efforts of the Government - represent a structural change in the money markets. Historically we have borrowed our funds at a Rate over LIBOR and lent to our clients at a rate over Base. Our recent switch from lending at Base to lending at margins based on LIBOR is a final step in closing the gap between our lending costs and borrowing income. Throughout all of our deliberations the impact on our clients has been uppermost in our minds - evidenced by our initial period of subsidy. I am firmly of the opinion that we present market leading products and service at a competitive price. We are not alone in altering our pricing profiles, others have used different - perhaps less transparent methods - to the same end. I believe we have reacted calmly and thoughtfully to a unique and turbulent set of events. I trust this note will help set you at ease and ensure that you continue to view Close Invoice Finance as a supplier of choice.
David Thomson |
