Factoring - Good or Bad

[top-click]

Hi All,

I'm considering factoring,

Do you have any advice, or opinions/experiences you could share?

Many thanks

Rob

Top-Click

[Rob Holmes]

<< moved to accounts and finance >>

Hi Rob,

I guess factoring is an option - but it costs (doesn't everything) - it maybe cheaper to address the issue why you have to factor rather than just get someone in that factors..

A couple of suggestions as contacts here would be ..

Ian J (I think does factoring)

Nicthechick - debt collection

Hope this helps,

Rob

[Ian J]

I'm considering factoring,

Do you have any advice

Don't go to your bank as there are better options. :lol:

If you want a chat have a quick look through my site where I point out some of the pitfalls then give me a ring and we can have a chat and I can point you in the right direction.

Factoring is brilliant for providing working capital for growth but less useful for loss making companies that just need extra cash to fund the losses.

[DuaneJackson]

As Rob says - look at the reasons you are considering factoring. Do you give your clients a long time to pay? Or do they just not pay on time.

There could be a cheaper way of dealing with it,

[Admiral Collections]

I have PM'd.

I do agree with Ian J, if you want to factor do not under any circumstances just go to your bank. Independent factoring companies tend to be the best, I have a client who used a bank and when a debt went bad offered a solicitor as an option, needless to say the debt wasn't collected till they got me on the case, however, they had paid 600 pounds for a letter that did sweet FA

Nic :wink:

[top-click]

Hmm, I was considering going to my bank and hadn't looked at the reasons I was considering it!

Thanks Rob! To be honest, having talked it over it is not something I am seriously considering now. A 1/3 of my clients pay up front, a 1/3 on time and 1/3 are regularly a pain. We had a near bad debt recently for £4k, which I 'ahem' sorted out with a little gentle persuasion. Th eproblem is obviously the last 1/3, they spend [and earn me] good money, but I seem to be spending more and more time chasing the cash.


Ok, so, back to the drawing board - thanks for the insights everyone.

Rob

top-click

(btw, IM has corrupted on my PC, so sorry to all I'm not available to, send me email rob@top-click.co.uk if you want/need/enjoy to!)

[DuaneJackson]

Rob, we were in a similar situation - clients that spend good money but pay late.

We now call them 3 days after an invoice is sent to them to check that they received it, that everything is in order and that we can expect payment by the due date.

Since doing this we very rarely have any late payers. Give it a go - it's amazing what that one phonecall can do.

Ideally have someone else call them rather than yourself. Some in in 'accounts'.

d

[top-click]

Nice idea Duane, I like that a lot.

Cheers

[Rob Holmes]

We now call them 3 days after an invoice is sent to them to check that they received it, that everything is in order and that we can expect payment by the due date.

Top Tip Duane !

Rob

[KM-Tiger]

Ideally have someone else call them rather than yourself. Some in in 'accounts'.
It's also a good idea to find out, if you can, the name of the person 'in accounts' at the other end.

You often find that that person, who is able to move your invoice to the top of the pile, is a relatively junior member of staff. Talking to them nicely, and sympathising about their impossible workload, and the problem of finding the right signatories, can work wonders.

[Neilh]

Hi

Have you considered an invoice discounting facility? Basically this would mean a 'financing company' lends you money against your credit sales. You stay in control of the debts owing (credit control etc) but you can borrow (only what you need) up to a % of your outstanding sales ledger.

When clients pay money, it is banked to the finance company (to repay the money you borrowed). The money you borrow is secured against your sales ledger, so if your company was to go under, the financier would take ownership of the debts owed to you on your sales ledger.

The only downside is that you have to be quite good with cash flow forecasting (to make sure that you draw money at the right time/amount) and if any debts become quite old, they may be excluded from what you can borrow.

Invoice discounting may not be best for all, but might be worth consderation? One thing I would suggest checking out is how much 'admin' you will have to carry out. Some companies reqire regular reports of sales and associated details which can become rather annoying!

Have you 'weighed up' the costs of factoring against employing a credit controller? Or perhaps sub-contracting out your credit control?

Neil

[bwglaw]

I have a client who used a bank and when a debt went bad offered a solicitor as an option, needless to say the debt wasn't collected till they got me on the case, however, they had paid 600 pounds for a letter that did sweet FA
Nic :wink:

I think the client has either been ripped off, or the client sought advice from the solicitor regarding the matter to justify the cost. I hardly think the client was charged 600 pounds for a letter.

Jonathan

[sofy60]

I agree

[gj]

Hi Rob

It does seem that greater credit control over the reaming 1/3 and possibly the middle third is the answer here.

Is there any chance of you being able to charge upfront - at least a retainer?

It also looks like you raise a charge on a weekly basis for management - this presuambly means you are chasing 4 invoices per month from the slow payers - why not charge them monthly - on advance - and you withdraw management if they haven't paid within 7 days of the start of the month.

Just some ideas - it is always worth looking at different ways of your getting money as credit control is time consuming and frustrating - you spending time just getting what is effectively your money that you have already earned. Don't be afraid to get tough - especially with new clients - if you say it with confidence (you may need to practice it) they will often accept it - in a way they don't know any different.

If you ask for money on account and they can't afford, you probably shouldn't do business with them anyway - it may only be a matter of time before they cause you grief.

HTH

Graham

[Admiral Collections]

I have a client who used a bank and when a debt went bad offered a solicitor as an option, needless to say the debt wasn't collected till they got me on the case, however, they had paid 600 pounds for a letter that did sweet FA
Nic :wink:

I think the client has either been ripped off, or the client sought advice from the solicitor regarding the matter to justify the cost. I hardly think the client was charged 600 pounds for a letter.

Jonathan

Jonathan, I sat in on the appointment with my client, now if you want his name, number and some clarification of what he paid I'm sure I can sort that out. So in legal terms, allegedly, my client was charged that amount of money.

However, the solicitors who run the legal debt line for the Chamber of Commerce and who, incidentally refer any form of debt collection to me, are reputable and we work together, so bad mouthing those in 'the know' is not my way of doing things.

Anyway, playground stuff over.

Duanes comments I wholly agree with, seeing as they were in my top 10 tips and as Duane knows, I get results.

So Rob, you have as many facts as you can muster, but tight credit control is truly the answer. Credit checking is also something not to be dismissed.

Nic :wink:

[Ian J]

I guess factoring is an option - but it costs (doesn't everything) - it maybe cheaper to address the issue why you have to factor rather than just get someone in that factors..

This thread has gone right off topic and I'm not sure that we should be trying to point the OP in a certain direction without knowing the full facts about his company so I will talk generally-

Despite what the marketing material will tell you factoring in general isn't really aimed at companies with poor credit control but is a method of providing working capital for companies that sell on credit terms and is best suitable for companies that are growing and need a source of funding that will keep pace with their growth.

It's all well and good saying that there are cheaper sources of funding available and there are if you are only looking for a small amount and can offer the banks the security that they need but in general the banks no longer want to offer overdrafts to the SME sector and are actively palming their clients off onto their own factoring divisions where the security is better and the rewards higher.

Some inefficiently run companies will benefit from outsourcing their complete sales ledger administration to a factor but in general the big boys are as inefficient as their clients with credit control consisting of sending out computer generated letters and little else.

[Business Angel]

Rob

We run a FREE broking service for Factoring and Invoice Discounting and happy to help :)

Our service also covers asset finance, leasing, trade finance etc.

Best regards

John

[Ian J]

We run a FREE broking service for Factoring and Invoice Discounting and happy to help :)

Our service also covers asset finance, leasing, trade finance etc.


Me too, but I think most people probably know that already :D

[SDawson]

Rob

only just seen your post as have been away so hope that my comments will still help.

coming from the invoice finance industry myself I can say that factoring is an expensive option for your problem.

Invoice discounting is an option (as previously mentioned), however you may come across some problems, bank discounters will look for minimum turnover values and a definate positive net worth and month on month profitability as well as good internal systems, computerised accounting etc. the independant discounters are not so strict but will still need comfort in your internal systems.

Invoice funders would also want to satisfy themselves that your type of business is 'factorable or discountable' and they can be pretty strict with what they will or won't accept.

As mentioned by other members your problem appears to be controlling your customers debtor days and having some systems in place to do this (especially credit searches and credit control).

take a look at our website www.inksmoor.co.uk as we specialise is advising clients in all areas of debt security and can also complete credit searches and credit control of behalf of clients taking the headache away from you and enabling you to run your business.

PM or call me if you want to chat further.

Sarah