Property factoring sector ripe for consolidation in Scotland

This equates to 55% of the total factored stock in the country. The remaining properties are managed by residential social landlords and local authorities.

The factoring marketplace has, until recently, shared many of the facets of the lettings market. It has a small cadre of major players followed by a ‘long tail’ of smaller businesses and landlords managing very low volumes of properties.

Indeed, our research shows that 86% of registered property factors in the private sector in Scotland manage fewer than 1,000 properties, making economies of scale almost impossible. Indeed, two in three factoring business manage fewer than 100 properties each. It is therefore safe to assume that owners are experiencing a wide and varied range of services, levels of professionalism and, crucially, costs.

The impact is not only felt by owners, however. Factors themselves have been put under increasing pressure to maintain high standards while attempting to improve their offering. Margins are under more pressure than ever and managing a small business in that context is very difficult.

Consolidation provides an opportunity for factors to cut through some of the challenges that they face. The process of consolidation is not just about company ownership and management structure; it is about day-to-day business tasks, financial management, debt control, customer service and identifying opportunities to improve and share best practice.

That is why we are proactively looking to consolidate the sector. The opportunity to make improvements to benefit owners through better services and value is clear.

Through consolidation, businesses can bring different skillsets together to create one singular, standardised organisation. Upskilling a consolidated business in areas such as customer service and practical skills can ultimately improve professionalism. Within the factoring sector, this improved professionalism and service delivery will improve retention and disrupt a very dormant industry.

The characteristics of the industry means there are varied levels of professionalism. This has given factoring an unnecessarily poor reputation, as the standards of a small handful of businesses can affect the reputation of a sector.

It is critical for the factoring sector to overturn these perceptions so that it can continue to grow. Through consolidation, businesses can have more influence over the sector and ensure that high standards are maintained, giving greater service to owners. There is huge value in having a professional factor in place – we need to change factoring from a distress purchase to a must-have one.

Consolidation can also help to reduce operating and capital costs. By centralising common resources such as HR, marketing, IT and compliance and through streamlining systems and processes, costs can be reduced. During consolidation, business functions are frequently rearranged, and systems are reorganised to help improve efficiency and further reduce costs.

Not only does consolidation help upskill industry and reduce costs, it can also help to increase overall revenue. Growing one consolidated business rather than having multiple smaller businesses enables the business to pursue new opportunities such as regional expansion, improved owner access to digital information, extending access to professional advice in different areas and attracting new owners.

Lomond Capital is a good example of regional consolidation in a similar market to ours – the lettings market. The business has been hugely successful at bringing together established players all with reputable professional standards, within cities across both Scotland and England. Through creating one regional, market-leading banner, Lomond Capital now manages more than £2.75bn worth of properties.

If applied to the property factoring sector, consolidation should be seen as a positive for owners, as well as the businesses within the sector. It provides new opportunities for improved skills within an industry, facilitates business growth and helps to reduce both operating and capital costs – all of which are good for business.

Although consolidation is rarely discussed within the property factoring sector, now is the perfect time for organisations to take notice of the positive outcomes that have been achieved in other sectors and put it into practice.

James Gibb Property Management has, itself, seen the benefits of consolidation, having expanded its portfolio from 4,000 units to more than 44,000 in seven years, by both organic and acquisitive growth. The model works very well and has given the business the perfect platform for further scalable and sustainable growth within the sector.

Douglas Weir is chief executive at James Gibb Property Management