Factoring

[scudulike]

Sorry if it's already been discussed in another thread, but what's everyone's view on factoring as a finance option? Anyone here used it in the past, and anything to watch out for?

Thanks in advance

Stu

[Maslins]

My view is it tends to end up being very expensive, but they hope you don't realise.

You'll typically be charged a fee of a few % initially, plus an interest charge. I'm almost certain you'll find it significantly cheaper to get a business loan or increase your overdraft...however that assumes you are able to do either of those things.

Obviously ignoring the finance costs there are other issues. You quite possibly will get paid quicker by using a factoring co, as the customer will be less likely to think they can try to get away without paying...but on the flipside, some customers may be upset as they think it means you don't believe they will pay.

[scudulike]

My view is it tends to end up being very expensive, but they hope you don't realise.

You'll typically be charged a fee of a few % initially, plus an interest charge. I'm almost certain you'll find it significantly cheaper to get a business loan or increase your overdraft...however that assumes you are able to do either of those things.

Obviously ignoring the finance costs there are other issues. You quite possibly will get paid quicker by using a factoring co, as the customer will be less likely to think they can try to get away without paying...but on the flipside, some customers may be upset as they think it means you don't believe they will pay.
That's what I was afraid of - some clients might think it's aimed at them, or that my company is not financially sound!

[mikelaluz]

Hi

I used Factoring some time ago in a business since sold. I would never ever go down this route again. Not just from the cost perspective which is pretty high. My biggest gripe is that they have control of debtors and create hassle with YOUR customers on a day to day basis. One hint of a dispute ( maybe a delivery charge or something minor) and the account was put on credit hold immediately.

Maybe I had a bad experience with a bad organisation so it's certainly not an objective viewpoint but I would tread very carefully.

Kind Regards

Mike

[Ian J]

My view is it tends to end up being very expensive, but they hope you don't realise.

You'll typically be charged a fee of a few % initially, plus an interest charge. I'm almost certain you'll find it significantly cheaper to get a business loan or increase your overdraft...however that assumes you are able to do either of those things.


If any bank will give you an overdraft to the value of 85% of your outstanding debts as well as promise to increase the funding in line with increasing sales my advice would be to take it.

[ServersandSpares]

If any bank will give you an overdraft to the value of 85% of your outstanding debts as well as promise to increase the funding in line with increasing sales my advice would be to take it.


I absolutely agree, and don't forget, if any of your customers get into difficulties and can't pay you, you aren't standing the majority of the loss.

As for hassle with your customers, that is easily avoided if you keep on top of your own customers, who should dispute anything with you first, rather than your factoring company, enabling you to rectify any issue. Also, be on good terms with your relationship manager, who will and should fight your corner, they are working for you after all.

Shop around and look at what is on offer to see what works best for you, and negotiate a deal that will work for you.

I would advise against getting into the mindset that your customers might not think your business is not financially sound, just because you might use factoring. You need to look after yourself before you can look after your customers.

[lesliedocherty]

To be honest, i always string out paying the factored accounts aslong as possible, and they always let me, soft as hell.

I pay the non factored ones first, since they are normally smaller companies

[Tej]

To be honest, i always string out paying the factored accounts aslong as possible, and they always let me, soft as hell.

I pay the non factored ones first, since they are normally smaller companies

Not soft Leslie. They charge the poor supplier interest on your outstanding debt!... and depending on the terms with the supplier, they would claw back the value of the debt. So it would be a lose/lose situation for the supplier.

He certainly don't neeed customers like you:)

[Tej]

If any bank will give you an overdraft to the value of 85% of your outstanding debts as well as promise to increase the funding in line with increasing sales my advice would be to take it.

Lol Ian.. that really made me chuckle:)

[Tej]

I absolutely agree, and don't forget, if any of your customers get into difficulties and can't pay you, you aren't standing the majority of the loss.

As for hassle with your customers, that is easily avoided if you keep on top of your own customers, who should dispute anything with you first, rather than your factoring company, enabling you to rectify any issue. Also, be on good terms with your relationship manager, who will and should fight your corner, they are working for you after all.

Shop around and look at what is on offer to see what works best for you, and negotiate a deal that will work for you.

I would advise against getting into the mindset that your customers might not think your business is not financially sound, just because you might use factoring. You need to look after yourself before you can look after your customers.

Depends on your factoring agreement!.. and keeping within the credit limits set by the factors.
Yes, IMO, factoring is expensive.. but if you have the right margins in your business, and can sustain the costs, its a good way to expand.

[David Griffiths]

Factoring often appears to be, and indeed often is, very expensive. You are outsourcing your whole sales ledger function to a plc, who charge you a percentage of turnover big enough to cover their plc-standard offices, salaries and overheads. And that's before you borrow a penny - they charge extra for that. Needless to say, getting a competent bookkeeper, possibly on a contract or part time basis, is going to be a lot cheaper, despite the line they spin about not having to pay to post out the statements. :rolleyes:

The problem is that banks will often push businesses down this route because of issues of security. I can't remember how long ago, but there was a decision about the effectiveness of certain types of floating charges in a liquidation, and the banks found that they weren't as secure as they'd believed. That's why factoring became so popular (with the banks) - the security is much stronger, and of course it's normally a bank subsidiary of the bank that gets the work and gets to make the profit. If you want cash, you might be pushed into factoring - beggars, choosers and all that.

Factoring does have advantages, if you can factor in (excuse the pun) the costs into your selling price. It's fully flexible, so is good for growing businesses. Sometimes having the sales ledger run properly is a new experience, and generally people do pay factoring companies more quickly, fearful of being reported for slow payment. (That obviously excludes bloody minded people like lesliedocherty of course! :p ) Where it's weak, apart from costs, is that the factoring company will set a credit limit for each of your customers. If they have other companies dealing with one of your customers, they may try to cut their exposure and thus cut your limit for dealing with what may be a major customer. Once in, it's difficult to get out.

There are other sources of finance, such as confidential invoice discounting which don't carry the same admin overhead in terms of external costs, but they can be very demanding of internal admin.

[Tej]

Absolutely spot on David

[easiprint]

DONT DO IT

Worst mistake I ever made going to a factoring company. There are many 'hidden' costs they dont tell you upfront. They play God with your clients, making demands for payment from clients who have already paid. They will find any tiny excuse not to pay you. They will not chase your clients for payment, because they are making good interest on the money from you. And as soon as the debts get to 70 odd days, they dump it back on you screwing your cash flow. They promise the earth and deliver nothing but charges and hassle. The one we used even lost us customers because of the totally incompetant way they handled the accounts. I would never do it again.

Maybe I was just unlucky, but once burnt..... I would never pick that stick up again.

[Tej]

DONT DO IT

Worst mistake I ever made going to a factoring company. There are many 'hidden' costs they dont tell you upfront. They play God with your clients, making demands for payment from clients who have already paid. They will find any tiny excuse not to pay you. They will not chase your clients for payment, because they are making good interest on the money from you. And as soon as the debts get to 70 odd days, they dump it back on you screwing your cash flow. They promise the earth and deliver nothing but charges and hassle. The one we used even lost us customers because of the totally incompetant way they handled the accounts. I would never do it again.

Maybe I was just unlucky, but once burnt..... I would never pick that stick up again.

Did you go the factoring route because you wanted to expand and needed the cashflow? Were your margins in the business good enough to sustain the related costs?
I am not for one minute advocating going the factoring route, but any lender is going to make money on his investment, commensurate with the risk.
If you have good customers who play the game.. you need never go into factoring, providing you could get the money from other sources to expand as you wish.

[Business News]

Factoring is a great cash flow aid for a fast growing business so if you plan to expand quickly then it's probably the only option that expands with your business theoretically without limits.

If you don't have run away growth plans then why would you want to commit to high finance costs? Also, once in it is very difficult to extract yourself. The bigger the factoring book the more it costs to buy it out. The bigger the book the more money you pay in factoring costs. Hence its a win win for the factoring company - growing nicely and locked in.

The other side of the factoring coin is that it can become a millstone that can rapidly drag a business down in a falling market.

Another downside is that some customers dislike dealing with factoring companies as they know the factoring costs are factored into the pricing and they are more likely to get badgered for payments. Not a bad thing in itself but if there is nothing to choose between a factored business and a non-factored business as a supplier then there is one reason why the non-factored could be favoured in a selection process.

[scudulike]

Thanks to everyone for the advice. I'm gonna go along to the meeting at the bank, just so I know what's available. Three weeks ago I hadn't even heard of factoring, so this is all useful ;)

I don't need it at the moment, but am considering it as a fallback if I get any contracts that I can't afford to fulfill without it

Thanks Again

Stu

[Gillie]

Thanks to everyone for the advice. I'm gonna go along to the meeting at the bank, just so I know what's available. Three weeks ago I hadn't even heard of factoring, so this is all useful ;)

I don't need it at the moment, but am considering it as a fallback if I get any contracts that I can't afford to fulfill without it

Thanks Again

Stu

I would suggest that rather than speak to the bank that you speak to IanJ who has posted on here as he has access to many other companies and can best sort you out for your type of business.

Nothing beats the personal touch!

And yes I am constantly telling people that they should get their finances in place before they hit problems as to a lender of any kind, they don't look so good then and will find it hard to get any form of lending, even the good old overdraft!!

[Ian J]

Worst mistake I ever made going to a factoring company. There are many 'hidden' costs they dont tell you upfront. They play God with your clients, making demands for payment from clients who have already paid. They will find any tiny excuse not to pay you. They will not chase your clients for payment, because they are making good interest on the money from you. And as soon as the debts get to 70 odd days, they dump it back on you screwing your cash flow. They promise the earth and deliver nothing but charges and hassle. The one we used even lost us customers because of the totally incompetant way they handled the accounts. I would never do it again.


Now if someone had posted "Worst mistake I ever made was going to a printer - never delivered anything on time and when they did it was full of mistakes and they made any excuse not to rectify anything - I think that you would be up in arms.

The claim that factoring companies don't chase the debts as they make more interest from slow payment is a complete fallacy. The biggest worry for any factor is client fraud followed by client insolvency and the way that they should limit their exposure is by operating an efficient credit control policy.

If you assume that a factor makes a 3% pa margin on the funds that it lends out it will generate an extra £50 per month by not collecting in £20,000 of invoices for a further month. It will also increase it's risk by £20,000 which to them isn't worth the reward.

The reason that some factoring companies don't operate a particularly good credit control system is simply because they aren't very efficient and in general the larger the factor the less efficient the credit control.

I'm not quite sure what happened in your case as on the one hand you say that the factors don't chase the debts as it's more profitable for them not to and on the other hand you also say that "They play God with your clients, making demands for payment from clients who have already paid." Surely both claims can't be correct.

Secondly your comment that "And as soon as the debts get to 70 odd days, they dump it back on you screwing your cash flow" is also a bit wide of the mark as most factors only recourse a debt when it is about 120 days old by which time it is becoming somewhat of a problem anyway.

[Tej]

IanJ.. I guess that is a normal rant and something you have become used to:)

Most companies that go the factoring route, seem to do so without any due diligence. The prospect of immediate cash for a large percentage of their debtor ledger is a phenomenal draw, and eases the cashflow in a flash. Its later on that they find out that they havent done their homework properly.
just my 2 cents

[lesliedocherty]

RBS finance never phone and chase payment

Barclays phone occasionaly

HSBC are pretty annoying, so pretty good from your point of view

[credit control service]

We've picked up several customers who have had real problems with their factoring company (usually it's been one of the big banks). The normal problem is that invoices aren't chased, and when they are chased they are done so in a way which sours customer relationships (e.g. sending out a threatening legal letter when there's a query recorded against an invoice).

Another option is to go for invoice discounting or CHOCS then either do the credit control yourself or outsource to a specialist like TAK.

This can end up being far more cost effective, it gives you more control and it helps to protect your relationship with your customer.

Credit control isn't simply about chasing cash, it's about forming relationships so that invoice queries are solved quickly, invoices are authorised quickly, and payment is made as soon as possible.

Jeremy
TAK-Outsourcing
Credit Control and Debt Recovery Services

[simon.hampton]

What is it that is driving you towards considering factoring?

[scudulike]

What is it that is driving you towards considering factoring?
As per my earlier post - nothing really driving me to it, just wanted to explore all options / avenues

[Ian J]

We've picked up several customers who have had real problems with their factoring company (usually it's been one of the big banks).

Therein lies the answer :D

When have banks been known for their service levels. That's why there are better alternatives in the independent sector

[Zeno]

One thing not to be overlooked when using any form of factoring is that you need to have solid and regular book keeping.

It is very important that your debtor's ledger is reconciled with the factoring statements as often as possible otherwise no end of trouble will kick in.

For example, I had a client who used Sage Instant Accounts and he did not know how to deal with the factoring statements. For 9 months, he just entered the transfers from the factors account as T9 receipts into the bank. As he was using cash accounting, this meant that only the non-factored cash sales appeared on the VAT return (only about 10%).

[Tej]

One thing not to be overlooked when using any form of factoring is that you need to have solid and regular book keeping.

It is very important that your debtor's ledger is reconciled with the factoring statements as often as possible otherwise no end of trouble will kick in.

For example, I had a client who used Sage Instant Accounts and he did not know how to deal with the factoring statements. For 9 months, he just entered the transfers from the factors account as T9 receipts into the bank. As he was using cash accounting, this meant that only the non-factored cash sales appeared on the VAT return (only about 10%).

Did he not reconcile his sales ledger? How did he know what was outstanding from the customers?.. If he didnt, how did he know if the credit limits were being breached?

Interesting!

[Zeno]

Did he not reconcile his sales ledger? How did he know what was outstanding from the customers?.. If he didnt, how did he know if the credit limits were being breached?

Interesting!

Before he started factoring he did. When he started receiving the factoring statements he was unsure of what do do with them so the only transactions he processed were the transfer from the factors to his current account.

Incidently, this is neither an argument for or against factoring. Just a wee warning to beware of the accounting requirements it can generates.

[davek17]

Hi There

Just noticed the size of this post, I am a fast typer!!

I'm looking at factoring and have spent an inordinate amount of time on it. This is what i have found.

Unless your turning over +£500k the main banks aren't interested or will be very expensive and you'll need to go for one of the independants. This is my experience with these.

The worry for me has been the hidden costs, the way they are hidden and the legal stuff you have to sign. When you add in startup costs, the standard lowest charge per month, the fact that 80% is the best you'll get next day and all the extra admin you have to do, it doesn't add up unless you are desparate for the cash flow. They all tie you in and they are all very aggressive on the debenture and the personal G'tee.

What has put me off is the 100 or so page, incoherently legal document I am supposed to sign which basically states they can seize all my assets both personal and business at a point that is determined by them on a set of conditions determined by them, which can all change as they require!!! i could effectively have £100K seized and uised to recover £10K of outstanding debt. It also puts conditions on your home and also gives them rights over everyone else you may have debt conditions with, even my bank loan!!. I really am left wondering if its a good idea or adds anything more than doing it myself at the end? I even had a solicitor friend look at the contracts and he said "you need to pay a proper corporate solicitor to look at these and I suggest you do!"

Add to this I know 2 companies who have suffered greatly on the relationship front. The factoring companies all talked about working together etc etc but when it came down to it they just worked to a process. They are convinced they have lost more money on repeat orders than they would have lost to bad debtors and outsourcing your customer service is never a good idea.

the final kick in the teeth is that if the debts go bad after 90 days then they take the money back from you but you are still left with the charges. So for the proper bad debts you end up with anyway and more out of pocket. There are very good solicitors/debt agencies that charge about 1% to collect your debts so this is another channel.

It has made me really look at the issues I face and solving them in the traditional way. Lets not lose sight that businesses have thrived for years without factoring!!

I think my solution will end up being this:

Credit check all companies and don't be afraid to ask for payment up front. I am hearing a lot of great stuff about the Barclays creditfocus which is £15 per rmonth and gives you a great credit check service direct from experian with alerts on all your customers and legal letters etc.

I will make sure I get relationship with as many companies as I can. I'll spend time ringing and automate reminders through my accounting system. if this is too big a job then I could probably afford some help.

I have also agreed more flexible terms with my suppliers, giving me a few days breathing room. It can be done!!

Lastly my bank has said that I can get an overdraft if I need to or i can even use my personal credit card to give me effectively 2 months free credit at my suppliers.

L:ets not forget that we're all supposed to be entreprenuers and you can always find a way to make things work!!!

Have I just talked myself out of factoring!!!

[Ian J]

What has put me off is the 100 or so page, incoherently legal document I am supposed to sign which basically states they can seize all my assets both personal and business at a point that is determined by them on a set of conditions determined by them, which can all change as they require!!! i could effectively have £100K seized and uised to recover £10K of outstanding debt. It also puts conditions on your home and also gives them rights over everyone else you may have debt conditions with, even my bank loan!!.

I know of no factoring agreement that allows them to seize your personal assets like you are suggesting

Add to this I know 2 companies who have suffered greatly on the relationship front. The factoring companies all talked about working together etc etc but when it came down to it they just worked to a process. They are convinced they have lost more money on repeat orders than they would have lost to bad debtors and outsourcing your customer service is never a good idea.

With the best will in the world people who are happy with their factoring arrangements rarely seek out threads on internet forums to tell the world of their satisfaction as it is only those with a grumble that will hunt around for old threads to resurrect. Those people who complain about the factoring companies credit control are split into two camps, those that say the factors are too aggressive and those that say they don't do anything at all - two diametrically opposed statements.

the final kick in the teeth is that if the debts go bad after 90 days then they take the money back from you but you are still left with the charges. So for the proper bad debts you end up with anyway and more out of pocket. There are very good solicitors/debt agencies that charge about 1% to collect your debts so this is another channel.

If you have a non recourse facility the factoring companies accept bad debt losses up to the agreed credit limits but even if you have a non recourse facility, once again I know of no factoring company that will ask for their money back after 90 days

[Shaun_Pearce]

I used to work in the credit checking industry for some time and this was one of many objections that I would come across. Dont get me wrong factoring can prove very useful for businesses. However In my experience of speaking to people who use the service. At some stage many were looking for different ways of securing their money due to the high expense that eventually comes.

Credit checking can provide businesses with piece of mind when dealing with potential clients and also during. They offer a monitoring service which can ensure that changes that may occur on your clientlist during the time of business will be sent to you immediately.

Factoring organisations use credit checking facilities to decide if they will cover a client of yours including the likes of HSBC who use Creditsafe's system. The one thing I do know is they set their paramaters higher than whats really required. Force business owners to turn away work because they cant get the money covered due to the factoring organisation watching their own back.

Credit checking facilities give much clearer views on companies and you decide whats best for your business.

Why not check out a few credit checking suppliers for quotes to your needs as well as just getting additional information.

Dont just take my word for it try out the likes of Creditsafe, DnB, Equifax & Experian.

All I'm saying is there are alternatives.

Good luck and I hope you find the best system thatworks for you.

[davek17]

Hi Ian

I just want to make sure the tone of my thread is understood. I'm not talking about whether the factoring company is aggressive or not doing anything. I am focussing more on the value of it, whether its right for you and whether you want someone contacting your customers. No matter how you look at it its never good to do this and you must make certain its the right choice.

In my case, I have a debenture I have to sign which is used as the first recourse of action should the business get into difficulty and then a separate Personal Guarentee which ensures that they can come after me if the debenture isn't enough.

What is clear and has also been told to me face to face is that my home is at risk if things go bad. I am happy to do this and will stand by my decisions in life but my argument is that the contract is too loose WRT when and how they can take control. This is something that today they have recognised and are re-considering.

In the case of bad debt losses. I have always recieved 2 quotes from the 3 factoring independants I saw and the difference was whether bad debt insurance was included or not. This ran anywhere from 1% - 2.5% of any outstanding balance but I did not go any further in terms of if there were any minimum fees with this. No factoring company will write unpaid debts off without you paying extra for that service.

With the greatest of respect, this is everything I have heard or learnt first hand myself as someoine going through the process now.

The morale of the story here is that you need to read the small print and get advice on what has happened. I think too many people think factoring is the answer but when it comes down to it, its not the miracle you think it is and you need to be very careful if you choose this route.

I have no doubt that there are polenty of people who find factoring works great for them, you just have to work out if its right for you and even your personality as it takes a good degree of control off you if you're not careful.

DaveK17

[Ian J]

In my case, I have a debenture I have to sign which is used as the first recourse of action should the business get into difficulty and then a separate Personal Guarentee which ensures that they can come after me if the debenture isn't enough.

If you were to fund the company via a bank overdraft it is just as likely that they would also ask you to sign a personal guarantee which would place you in exactly the same position

[Ian J]

Factoring organisations use credit checking facilities to decide if they will cover a client of yours including the likes of HSBC who use Creditsafe's system. The one thing I do know is they set their paramaters higher than whats really required. Force business owners to turn away work because they cant get the money covered due to the factoring organisation watching their own back.

Credit checking facilities give much clearer views on companies and you decide whats best for your business.


The two are completely different as in the first instance you are talking about insured debts whilst in the second you are talking about credit checking which gives one no guarantee of payment at all.

I'm not convinced that credit checking is of much use to an SME at all firstly because it needs a certain degree of skill to decipher what is being said and not said in the report and secondly that in this fast moving recesssion events happen rather too quickly with examples being the collapse of so many retailers a few months ago which all had Icelandic connections as the credit reports were all good until the day things turned sour

[davek17]

Hi Ian

I'm not desputing that at all and you are right and I have actually just got a loan from a large high street bank where I had to do just that. I don't think you can get one without it! However you would have way more control and flexibility.

The difference with the banks is that the terms by which they can go after you are very different from the ones I am having to sign with the independant factoring company. 4 pages Vs 100 pages with a full explaination Vs get your own solicitor. The banks also have to operate in a very public environment, under a current political tone that they have to do their best for people in a very open manner now. All the questions of liability, what will happen, how and when were discussed up front and it felt honest and good. if I was big enough and the charges were good enough then I would definitely have gne factoring with a big bank without even considering the independants. The fact is the big banks are too risk averse and whilst they can't turn small or risky buysiness away directly they will factor the risk as they see it into their prices.

The factoring company does not come under the same spotlight and the way little charges, minimum charges and other charges got slipped into the sales dialogue and then legally incomprehensible documents hit me square on has just made me lose faith somewhat and that little voice is giving me a warning.

It's my experience that I give and my gut is telling me that factoring may not be for me. I have tried to uncover some of the elements that I have found because I have heard this happen a lot. Its up to what you are comfortable with and what is best or obtainable for your business.

I am also willing to accept that, as I mentioned in my last post, that you need to have the right personality for factoring. I am having second thoughts having gone through the process and feel I want to keep more control over my company.

[Jaydee]

We have a number of clients that factor or invoice discount.

My personal view is that factoring gives access to the maximum drawdown in return for the minimum personal security.

It is undoubtedly expensive when compared with bank finance but it definitely has its place.

The last x deals that we have assisted in placing, the directors have given fraud warranties only rather than full PG's, to protect the factor against "fresh air invoicing".

In all of the cases, they would not have been able to access bank finance without PGs and so saw the increased cost and not insignificant admin burden as acceptable in their circumstances.

[davek17]

I'm not convinced that credit checking is of much use to an SME at all firstly because it needs a certain degree of skill to decipher what is being said and not said in the report and secondly that in this fast moving recesssion events happen rather too quickly with examples being the collapse of so many retailers a few months ago which all had Icelandic connections as the credit reports were all good until the day things turned sour

If you go and see most credit checking services they will give you a very quick, effiecient and understandable view of a company. The report will tell you if the company is in liquidation, or in trouble and will also give you clear 1-100 rating of the risk as well as the avg days they take to pay invoices. I have been told by all the factoring companies I spoke to that they use Equifax so a factoring company only has access to the same information but applies much more stringent rukes on whether ut will factor you anyway.

Its up to you to take the plunge, no one will do that for you, even factoring companies!!! You have to understand that if you give credit you take a risk and sometimes that risk doesn't pay off.

Search for Barclays Credit Focus and you can see in the help.

[GRDCredit]

I'm not convinced that credit checking is of much use to an SME at all firstly because it needs a certain degree of skill to decipher what is being said and not said in the report and secondly that in this fast moving recesssion events happen rather too quickly with examples being the collapse of so many retailers a few months ago which all had Icelandic connections as the credit reports were all good until the day things turned sour

On point 1 you need an expert who knows how to decipher the report for you - now let me think, do I know of one!

On point 2 not an unreasonable observation but the more information you have to enable a decision to be made this must surely be a good thing?

Credit checking is always of use to SMEs

[Ian J]

If you go and see most credit checking services they will give you a very quick, effiecient and understandable view of a company. The report will tell you if the company is in liquidation, or in trouble and will also give you clear 1-100 rating of the risk as well as the avg days they take to pay invoices. I have been told by all the factoring companies I spoke to that they use Equifax so a factoring company only has access to the same information but applies much more stringent rukes on whether ut will factor you anyway.

We are talking about two different things here so dealing with your second point first:- a factoring company is primarily interested in it's own security and if you have 20 or so customers with balances reasonably spread the factoring company will not have it's own money at risk until several have gone bust so the better factors are far more liable to be generous with their credit limits knowing this.

Secondly credit checking may uncover those customers who have made a habit of paying slowly or who have judgements against them but won't help in the situations where a company is profitable and pays it's debts on a reasonable basis until the day when it's own major customer goes bust. These may have been reasonably isolated instances in the past but in the current economic climate many companies have turned from reasonable risk to poor overnight.

What your credit check won't tell you is that the light engineering company that you have enquired about does the bulk of it's work for another much larger company who just happens to be a major supplier to General Motors.

It wasn't that long ago that the credit insurers took fright and refused to insure any debts that were anything to do with the auto industry and in one particular month one of the major insurers stopped underwriting any new insurance limits on any retailer at all

[Shaun_Pearce]

The two are completely different as in the first instance you are talking about insured debts whilst in the second you are talking about credit checking which gives one no guarantee of payment at all.

I'm not convinced that credit checking is of much use to an SME at all firstly because it needs a certain degree of skill to decipher what is being said and not said in the report and secondly that in this fast moving recesssion events happen rather too quickly with examples being the collapse of so many retailers a few months ago which all had Icelandic connections as the credit reports were all good until the day things turned sour

I'm talking purely from my experience of the system I sold at Creditsafe. The reports are not hard to use. Within 15 minutes I would manage to demonstrate the system and sell it. The same with any service sold these days an account manager is available to help with any questions that are out there for the client and CSUK offer a 1 to 1 client/account manager system.

In terms of notification to a change CSUK offer a media solutions system that tracks the media coverage on a local and national basis. Anything thats covered by the media and thats not just local newspapers we are talking about here. Anything on the internet also. It's a revolutionary system which is getting the company a lot of customers especially those who factor.

I can appreciate you may not fully admire the service however dont just take my word for it call Creditsafe now and just ask the question - Why is credit checking an alternative to factoring. You can then have a few free reports to see the ease and efficiency of such a system.

Don't get me wrong I've seen nearly every system out there and there are some which require a masters degree to use. However to put them all in one catagory would be the wrong thing to say.

This isn't just my opinion its the opinion of nearly 35% of CSUK's customers who used to or still do factor. As it can also compliment a factoring service. If your factoring company decides not to factor the invoice of a particular job then the credit checking facility can give you piece of mind.

[davek17]

The factoring companies will have as little visibility to the kind of thing you are talking about as the credit agencies and this is simply a fact of business in any climate. If that debt goes bad it doesn't matter if it is being factored, you will still be liable (And you will have paid some charges you won't get back for the factoring too if you use factoring!).

I don't agree with your view on factoring companies having more generous credit limits. In fact when I originally spoke to the factoringadvisoryservice.co.uk their main warnings to me were that factoring companies can actually harm your business because they will impose lower credit on each customer and won't let any individual customer debt go above a certain %age of the total debt. It is common that they can go even further by not allowing you to invoice yourself on a perfectly good company because I guess it does make sense to them that they have an interest in your total debts and risks, not just their agreed limits. By definition this is going to lower the credit they would be willing to give you for any 1 customer and lets not forget they actually set a total credit facility anyway. To me that spells lots of inflexibilities that you wouldn't otherwise have. You cite hard times in your post, well I surely people in the credit business are going to be more restrictive in hard times making it harder for you?

Thats why I and others on here have said that there are various tools at your disposal but, factoring company or not, its your business, your decision and your risk. I am sure there are people who are lucky, unlucky, wise and unwise but at the end of the day you have to take a calcuated risk every day in business.

You can outsource that risk to a degree but it will cost you.

[Ian J]

I don't agree with your view on factoring companies having more generous credit limits.

I have been in the industry for 40 years but am happy to bow to your greater experience.

If factoringadvisoryservice.co.uk actually advised you as you have quoted it points out the importance of dealing with a specialist factoring broker and not the broking arm of a specialist insolvency practioner as you appear to have done.

[Geoff T]

Hi All,

[soap box coming on...you were warned!]

I've been reading through this thread with increasing interest and concern - namesake, would you like to explain why you ignored the obvious?!? - I must confess that I cannot understand why there are so few Credit Control entries on here, to counter the "factoring is good" entries?

To those who's hackles just rose - let me be clear and conciliatory - there is a place for factoring, and for what you offer. It does have it's place and value.

It's just that I don't know where - to me, you're like PPI - pointless, and like "sub-prime"! Let me explain...

Factoring is - by experience - costly, heavy on admin, and restrictive to business growth and/or protection (especially in the current climate), reduces the value of decent credit control, and - in my view - any business considering protecting or expanding their business should look for any other option first!

If no-one else has the "cahones" to say it, I will. Factoring will NEVER replace good, solid, consistent, commerically astute, and pro-active credit control. This is NOT about what I do, it's about the service you offer - take the hint! Change or sink! Learn that the old ways of profit-taking are dying out! (if not, they should be!)

Last, I KNOW! You don't like it! PROVE ME WRONG!

In case you don't believe I'm serious about this, I'll give my direct email addy for directed, and personal, abuse - geofft@urecall.co.uk - It won't be a first! and if you want my home address - send an email - I've seen heavies before...

Regards,
Geoff

[GRDCredit]

Sorry if it's already been discussed in another thread, but what's everyone's view on factoring as a finance option? Anyone here used it in the past, and anything to watch out for?

Thanks in advance

Stu

I think we need to get back to the original question!

Factoring is, in my opinion, an option as a last resort for finance. When I worked for a high street bank - admittedly many years ago - we would push businesses to our factoring division if traditional finance e.g. overdraft could not be made available, principally due to lack of security. Banks did not like to lend with only the security of an 'intangible' asset like the debtor book. Factor companies were however more expensive and more admin focused.

When I left the bank and joined the corporate world if we received a letter to say that a supplier was now using a factor company and all payments should be forwarded to them the inevitable response was 'they're struggling'

If you can raise finance elsewhere - do so.


Obviously ignoring the finance costs there are other issues. You quite possibly will get paid quicker by using a factoring co, as the customer will be less likely to think they can try to get away without paying...

Sorry to quote a response made so long ago but this is wrong,wrong, wrong, wrong and wrong! If as a professional credit controller I could not get invoices paid quicker than a factoring company I would pack it all in.


Hi All,

[soap box coming on...you were warned!]

I've been reading through this thread with increasing interest and concern - namesake, would you like to explain why you ignored the obvious?!? - I must confess that I cannot understand why there are so few Credit Control entries on here, to counter the "factoring is good" entries?

To those who's hackles just rose - let me be clear and conciliatory - there is a place for factoring, and for what you offer. It does have it's place and value.

It's just that I don't know where - to me, you're like PPI - pointless, and like "sub-prime"! Let me explain...

Factoring is - by experience - costly, heavy on admin, and restrictive to business growth and/or protection (especially in the current climate), reduces the value of decent credit control, and - in my view - any business considering protecting or expanding their business should look for any other option first!

If no-one else has the "cahones" to say it, I will. Factoring will NEVER replace good, solid, consistent, commerically astute, and pro-active credit control. This is NOT about what I do, it's about the service you offer - take the hint! Change or sink! Learn that the old ways of profit-taking are dying out! (if not, they should be!)

Last, I KNOW! You don't like it! PROVE ME WRONG!

In case you don't believe I'm serious about this, I'll give my direct email addy for directed, and personal, abuse - geofft@urecall.co.uk - It won't be a first! and if you want my home address - send an email - I've seen heavies before...

Regards,
Geoff

Wow - what have you been drinking tonight!

If the prime reason for factoring is to improve admin, get paid quicker, reduce risk then NO. A far better and cheaper solution is to introduce a professional credit control policy and procedures.

If however you need an urgent injection of cash - e.g. 60-80% of invoice value paid when the invoice is raised then, no, credit control cannot help and factoring may be the way to go.

In an ideal world however you need good credit control backed up by a sensible bank overdraft facility.

Sleep tight!


Geoff

[Ian J]

If no-one else has the "cahones" to say it, I will. Factoring will NEVER replace good, solid, consistent, commerically astute, and pro-active credit control. This is NOT about what I do, it's about the service you offer - take the hint! Change or sink! Learn that the old ways of profit-taking are dying out! (if not, they should be!)

Last, I KNOW! You don't like it! PROVE ME WRONG!


What on earth are you on about. Factoring is a financing tool that provides working capital against outstanding invoices and isn't supposed to replace effective credit control but to compliment it.

If a company were to sell something in the first week of the month they wouldn't expect to get paid until the last week of the following month which is about 60 days later - assuming that the customer paid to terms which most seldom do. If you can tell me how "good, solid, consistent, commerically astute, and pro-active credit control" will get that customer to pay weeks before it's due I think that you should share that secret with us all.

Let's not forget that many of the contributors to this thread are involved in the credit control business and have a vested interest in self promotion but outsourcing the credit control is only the answer when the company's own credit control is so poor that no-one is paying as no matter how effective the credit control no-one can make a company pay before an account is due.

To summarise (yet again) a company turning over £500,000 per annum who's customers pay in an average of 60 days will likely have outstanding debts of £96,000 and factoring at 80% will provide a cash injection of about £76,000

The cost of the facility is likely to be about £8,500 which includes both factoring commission and interest and this figure equates to 1.7% of turnover.

The only person qualified to decide whether this is expensive or not is from the company raising the money as only he will know how that extra £76,000 of liquidity can be used. Many companies can raise the cost of their products by 2% thus covering the cost in one fell swoop or can perhaps buy in raw materials at more competitive prices with the extra cash that they have available but the biggest saving / earner is normally the ability to fund higher (and therefore more profitable) levels of turnover.

Compare that scenario with raising working capital from more traditional souces like a bank overdraft and the hypothetical company above is likely to be offered a bank overdraft of £5,000 or £10,000 maximum. Even utilising the services of one of the credit control companies busily selling themselves in this thread will likely only cut down the average credit period from 60 days to 55 which will reduce the debtors by £9,000

There is a huge difference between raising £76,000 via factoring and £9,000 by more effective credit control without taking into account the cost of the credit control or perhaps more importantly the fact that the latter isn't guaranteed and they could end up not reducing the credit days at all.

Obviously factoring isn't suitable for everyone but 48,000 companies in the UK generating £175b of turnover obviously think it is

[GRDCredit]

- assuming that the customer paid to terms which most seldom do.

Agree with most of what you say but not this line. Most customers - in my humble opinion - do pay on time when asked!


Let's not forget that many of the contributors to this thread are involved in the credit control business

Guilty as charged although hope you agree that my post above acknowledges that factoring and credit control are two different beasts.

To be fair you are not exactly impartial yourself!



Geoff

[Ian J]

To be fair you are not exactly impartial yourself!


I may not be impartial but at least I have attempted to answer the question which was whether or not factoring was a useful finance option"

You won't find me trawling credit control threads telling people that they are wasting their money and that they should be factoring instead - which is exactly what some of the contributors here have been doing

[Shaun_Pearce]

For me this has been a very constructive thread. I'm a wiser man :)

Many thanks

[GRDCredit]

For me this has been a very constructive thread. I'm a wiser man :)

Many thanks

So which are you going for - factoring or credit control;) (TIC)



Geoff

[Geoff T]

Hi All,

I feel a [slightly humble] explanation is called for!

My previous post was - having re-read it - overly confrontational, therefore unnecessary and unprofessional, and as such I apologise for it unreservedly. "take it on the chin time!" My oft-lamented brusqueness is a problem, I know, and - despite my best efforts - can run away with me when I'm on a keyboard, fingers type before brain is engaged scenario!

BTW - namesake - this was the tail end of a 16 hour "day from hell", the beer came after!

Having made my apology though, I'm not reneging on the key points in my post.

I'm not saying good credit control can get payment in weeks before it's due - Ian J - but I AM saying that good credit control can have such an overall benefit to a company's cashflow that - in a "best case" scenario - could preclude the need for more expensive forms of financing. Been there...done that in the last 12 months. Tightening/enhancing credit control allowed the client - admittedly with juggling - to finance a 9M increase in sales without any other form of finance.

To use you own example - let's average it to 2% of turnover - how much extra does that give the client, rather than adding it to the "overhead" column? £180k up in anyone's book is a bonus!

While I remain apologetic for the confrontational tone, I stand by the points made previously. Factoring, invoice discounting, credit insurance, whatever, will NOT replace good credit control. They are expensive, time intensive, and business-restrictive options.

One thing I have learned from this post is not to try to continue beyond my own capabilities, and as I've reached 12 hours today, I will take my own advice, and log off!

Regards to all
Geoff

[davek17]

I have been in the industry for 40 years but am happy to bow to your greater experience.


Hi All. I too have enjoyed the thread apart from the above comment from IanJ. There was no need to get personal like that, I was trying to give my experience, not trying to advise anyone and we need to keep things business like on a business forum.

A forum is a place where people seek advice and experience and can constructively comment and argue points with their peers not necessarily get advice from the experts. I have tried to do just that and expose some of the hidden things certain factoring companies have brought into the equation for me, due to being niaive about factoring at the time.

If people know what the right questions to ask are early on then they will waste much less time on making a decision on whether factoring is for them or not.......exactly what the thread asked.

[Ian J]

I was trying to give my experience, not trying to advise anyone and we need to keep things business like on a business forum.

You appeared to be passing on the erroneous opinions of an insolvency practitioner as fact.

their main warnings to me were that factoring companies can actually harm your business

The above quote is rather amusing as the people that you have been dealing with are part of the insolvency practice of Leonard Curtis and they have just won themwelves the highly lucrative job of Administrators of Challenge Finance a small Kent based factoring company thus proving that factoring can be highly beneficial to their business :)

[davek17]

Lets not spoil the thread, agree to disagree and leave it there.

[Jaydee]

An interesting thread, but I am not clear why it became a credit control -v- factoring debate.

I would have thought that good credit control is an important discipline for all businesses.

Then, if you do not have the cash that you require to trade as profitably as possible, and you are unable to source cheaper and/or less burdensome finance than factoring (because perhaps you have no other security), then you factor.

Then once you are factoring, you still practice efficient credit control to keep your factoring interest down + less likelihood of a refactoring fee + less likelihood of a bad debt.

[Geoff T]

An interesting thread, but I am not clear why it became a credit control -v- factoring debate.

I would have thought that good credit control is an important discipline for all businesses.

Then, if you do not have the cash that you require to trade as profitably as possible, and you are unable to source cheaper and/or less burdensome finance than factoring (because perhaps you have no other security), then you factor.

Then once you are factoring, you still practice efficient credit control to keep your factoring interest down + less likelihood of a refactoring fee + less likelihood of a bad debt.

[holds hands up] That'll be my fault - as previously posted, my apologies again to all:redface:

well said

Regards,
Geoff

[Simon.Culpeper]

Great Thread Everyone

At the risk of opening a can of worms, I think that Factoring in it's full form can be the astute and quality credit control that Geoff speaks of.

I will admit to being very biased working for a Factoring company myself but we have a DSO well below the industry average and many of the clients we work for especially some of the smaller one band guys who would much rather have one of our full time credit controllers working for them than either: A doing it themselves alongside their other responsibilities or B Hiring someone else to do it.

I am more than aware of the risks perceived of someone else performing a companies credit control especially with the presence of refactoring fees but I refuse to beleive that we are the only company out there who perform good quality credit control for their clients whilst still providing the funding they require.

Si

[Ian J]

I refuse to beleive that we are the only company out there who perform good quality credit control for their clients whilst still providing the funding they require.


Quite right. You're not :)

[GRDCredit]

Aaaaaaaaaaaarrrrrrrrrrrrrrrrrrgggggggggggggggggghh hhhhhhhhhhhhhhh!!!!!!

Let this thread die!











(Credit Control is far more effective than factoring!)

[Gillie]

Aaaaaaaaaaaarrrrrrrrrrrrrrrrrrgggggggggggggggggghh hhhhhhhhhhhhhhh!!!!!!

Let this thread die!











(Credit Control is far more effective than factoring!)


Horses for courses ... rather a sweeping statement to say that all companies will benefit from credit control instead of factoring ... aint that the beauty of business in that there is NO quick fix or ONE solution for every company??

[GRDCredit]

Gillie

I know from another thread that you have not had the best of days but trust me that post was intended tongue in cheek and needs to be read in conjunction with the rest of the thread.


Geoff

[Gillie]

Oh I read the rest of the thread with interest, professional interest that is, as my company offers short term finance in its many forms as well ... we also deal with a form of credit control as well with a different company ... so guess that means I have a foot in both camps, and speaking from my many years (heck will someone get upset at me admitting to being old!) that as I said, what suits one business, does not suit another and will not work or be the most effective means of solving a situation.

And yes I do know you have a sense of humour ;)

[Geoff T]

Hi Gillie,

to take you up on a point if I may...

if we does assume that we are all adults on here (16 hour days notwithstanding!:redface:) then we are all over 18...

With an ageing population, (few) of us can claim to be 21 anymore...

Therefore the only sane conclusion, bearing in mind your previously well-composed response, one can only conclude that puts you above that, say 25...

The use of the emoticons clearly proves you're below 30, as 40+s can't find 'em!;) It's like texting on a "mobey":D (anyone fancy programming my betamax for me?)

LOGICALLY THEN - that puts you in the 25-30 age bracket, which as an over-40 makes you a "pup" in my book!!:):):)

Regards
Geoff

[Gillie]

Hi Gillie,

to take you up on a point if I may...

if we does assume that we are all adults on here (16 hour days notwithstanding!:redface:) then we are all over 18...

With an ageing population, (few) of us can claim to be 21 anymore...

Therefore the only sane conclusion, bearing in mind your previously well-composed response, one can only conclude that puts you above that, say 25...

The use of the emoticons clearly proves you're below 30, as 40+s can't find 'em!;) It's like texting on a "mobey":D (anyone fancy programming my betamax for me?)

LOGICALLY THEN - that puts you in the 25-30 age bracket, which as an over-40 makes you a "pup" in my book!!:):):)

Regards
Geoff

Such a charmer!! :eek:

I have a nearly 20 yr old daughter away at uni ... so yes I was merely a blip when she was conceived!

[Geoff T]

Such a charmer!! :eek:

I have a nearly 20 yr old daughter away at uni ... so yes I was merely a blip when she was conceived!

'nowt wrong with being "precocious" (and yes - had to spell-check it!):)

[Happy2Help]

Sorry if it's already been discussed in another thread, but what's everyone's view on factoring as a finance option? Anyone here used it in the past, and anything to watch out for?

Thanks in advance

Stu

Its ok if your small enough and dont have the time to chase payments etc, but the fees are expensive

[Geoff T]

Its ok if your small enough and dont have the time to chase payments etc, but the fees are expensive


so...let me guess...the point here was to get back to the original question?!?:)

[Isabel230]

I worked in a large company, and a lot of our suppliers used factors, and I hated them, with a passion. Everytime there was quereis, the account would be placed on stop. Often I would be on the phone talking to someone who did not have a clue about, how accounts worked. They would always believe that the fault was with us, and not them or the suppliers. To this day, I do my best to keep well away from them. They cause more trouble than they are worth

[GRDCredit]

The thread that just refuses to lay down and die...............

[Ian J]

At least Isabel's post is on topic

[wizzard]

The thread that just refuses to lay down and die...............

You could exercise some self control and ignore the thread when it pops up on your radar. ;)

[GRDCredit]

At least Isabel's post is on topic

My humblest apologies

You could exercise some self control and ignore the thread when it pops up on your radar. ;)

You are of course right. I shall never post on this threa........... oh damn!

[dan74uk]

That's what I was afraid of - some clients might think it's aimed at them, or that my company is not financially sound!


depends on how your customers normally pay.you may find the factoring companies put u under serious pressure if people dont pay and in the current cliamte u may spend your time explaining yourself to factoring companies
please make sure your invoices are totally sound and are traceable because if not and the factoring company cant get hold of your customer again it will cause u grief
we have used factoring many times but too me the disadvantages outweight the advantages