P
Phil B
- Original Poster
- #6
Factoring does not help your customers spread their payments who the hell told you that?!?
It is a hugely expensive way of financing your business, massively helps cash flow initially and is like a drug get on it and you will never get off, the cash flow benefit is your hit.
Your customers get to spread their payments?
It is a hugely expensive way of financing your business, massively helps cash flow initially and is like a drug get on it and you will never get off, the cash flow benefit is your hit.
Your customers get to spread their payments?
Upvote
0
I also hear loads of horror stories and although some of them are true the vast majority are the fault of the company and not the factor. In the last month I have had one prospective client complaining bitterly about his factoring company being heavy handed yet when I looked a little closer he was invoicing before the goods were sent out. Yesterday I had another one complaining that his factor would only fund his major customer to a very small amount and then he let slip that his customer was also a shareholder in his company.
The vast majority of people who complain about their factoring company are actually at fault themselves but human nature being what it is they would rather look around for someone else to blame.
Upvote
0
A company I used to work for used a factoring company and although it may have changed since this is what happened:-
Once a month we would send a report detailing
- Invoices raised (we still sent this out, did our own credit control etc)
- Payments recieved (these would be going into a bank account in the companies name but held in trust by the factoring comapny)
- Debt analysis (30, 60, 90+ days)
- Purchases
After 48 hours we would recieve funds based on 75% of the invoices raised (minus any that would/could be contra'd against purchases). They would clawback/withold funds based on any 90+ invoices (the company I worked for did no credit control until I started
)
They would also release a further 15% of any payments recieved. Keeping the remaining 10% as fees.
TBH it helped this companies cashflow enourmously, the company was unique in the area, just been severly mismanaged, therefore they could raise their prices to cover the fees. But I agree that once in there it is very difficult to come off, unless the company can survive without any incoming cash for a month or two.
When we started up our business, my partner was keen to go down this route to help with the initial cashflow every new business has, however after questioning me more and doing some delving we decided not to.
Once a month we would send a report detailing
- Invoices raised (we still sent this out, did our own credit control etc)
- Payments recieved (these would be going into a bank account in the companies name but held in trust by the factoring comapny)
- Debt analysis (30, 60, 90+ days)
- Purchases
After 48 hours we would recieve funds based on 75% of the invoices raised (minus any that would/could be contra'd against purchases). They would clawback/withold funds based on any 90+ invoices (the company I worked for did no credit control until I started
)They would also release a further 15% of any payments recieved. Keeping the remaining 10% as fees.
TBH it helped this companies cashflow enourmously, the company was unique in the area, just been severly mismanaged, therefore they could raise their prices to cover the fees. But I agree that once in there it is very difficult to come off, unless the company can survive without any incoming cash for a month or two.
When we started up our business, my partner was keen to go down this route to help with the initial cashflow every new business has, however after questioning me more and doing some delving we decided not to.
Upvote
0
Caveat : I have never used factoring, and I do not intend to. While I have considered it and did investigate it, I claim no expertise.
Having said that, be aware that your factor may decline to deal with some of your customers - coincidentally, probably those you will find the hardest to get payment out of yourself, so they may be doing you a favour in the long run.
Having said that, be aware that your factor may decline to deal with some of your customers - coincidentally, probably those you will find the hardest to get payment out of yourself, so they may be doing you a favour in the long run.
Upvote
0
Thanks Elaine for the mention - to back others on here OP, Factoring is expensive as a service, terribly time consuming and restrictive so adding to overhead costs - and IMO - a complete waste of time!
If you want to offer customers some payment flexibility - first my blog offers some ideas, second - do some decent credit control - cost you loads less, and gives much more affordable flexibility...
Factoring has it's place - I'm not getting into that row again - but for me, good credit control will do a better job, at a fraction of the cost.
GRD could help just as well, drop him a PM...surprised he didn't pick up on the thread!
If you want to offer customers some payment flexibility - first my blog offers some ideas, second - do some decent credit control - cost you loads less, and gives much more affordable flexibility...
Factoring has it's place - I'm not getting into that row again - but for me, good credit control will do a better job, at a fraction of the cost.
GRD could help just as well, drop him a PM...surprised he didn't pick up on the thread!
Upvote
0
I have come across a company that was struggling for cash and misused factoring.
It wasn't full factoring in the sense the company were still responsible for collecting in the debtors
The abuses were
they raised invoices for work that wasn't done. They were frequently caught out when the bank rang the supplier
An invoice was coming up to 90 days and due to be reclaimed by the bank so they went into Sage and changed the invoice date so it didn't show as 90 days plus on the Aged Debtors report. The bank spotted it. They were not happy
They raised an invoice for £100000 for an agreed up front payment on a foreign contract. They sent a copy invoice off not expecting to be paid. simply to keep the sales ledger held by the bank in line with the companies, but the bank mistakenly advanced the money. They took the view that will come in handy we'll hang on to that.
Factoring is expensive and depending on the businesses can be intrusive - wouldn't like banks ringing up my clients asking if I'd done work. Like most loans they will probaly ask for personal guarantees.
Sometimes it is worth it to finance expansion - probably well suited to temporary staffing - but sometimes you just have no choice
It wasn't full factoring in the sense the company were still responsible for collecting in the debtors
The abuses were
they raised invoices for work that wasn't done. They were frequently caught out when the bank rang the supplier
An invoice was coming up to 90 days and due to be reclaimed by the bank so they went into Sage and changed the invoice date so it didn't show as 90 days plus on the Aged Debtors report. The bank spotted it. They were not happy
They raised an invoice for £100000 for an agreed up front payment on a foreign contract. They sent a copy invoice off not expecting to be paid. simply to keep the sales ledger held by the bank in line with the companies, but the bank mistakenly advanced the money. They took the view that will come in handy we'll hang on to that.
Factoring is expensive and depending on the businesses can be intrusive - wouldn't like banks ringing up my clients asking if I'd done work. Like most loans they will probaly ask for personal guarantees.
Sometimes it is worth it to finance expansion - probably well suited to temporary staffing - but sometimes you just have no choice
Upvote
0
And you will keep on posting to that effect as long as you continue to earn a living by offering what you consider to be a better alternative whether you are right or not.
If you can come up with an alternative to factoring in which your client will receive 80% of the invoice value immediately the goods have been delivered I will be all ears.
Well run companies will use the cash flow freed up by factoring to make more profit than the cost of factoring so how can that be deemed expensive.
It's "terribly time consuming" to send a copy of each invoice to the factor is it?
For 95% of all factoring clients it isn't the slightest bit restrictive. There will always be some companies to whom it won't be quite as suitable through large concentrations to less than creditworthy clients but they are in the minority.
Perhaps I should start posting in the "credit control" threads advising people to be careful as the company could run off with your money
Upvote
0
Disclaimer - I have a business that helps people improve cash flow without factoring.
------
Ian,
This is the second thread on factoring that I remember where you appear to me to be dismissive of the negative experiences of the business owners and their customers.
To quote: "The vast majority of people who complain about their factoring company are actually at fault themselves". I believe this is what is known as an 'ad hominem' attack - the person is at fault therefore the claim is faulty, however, in this case the experiences of the other posters cannot simply be dismissed as irrelevant.
It would appear that there are valid reasons to consider alternate strategies for improving cash flow. These include:
------
Ian,
This is the second thread on factoring that I remember where you appear to me to be dismissive of the negative experiences of the business owners and their customers.
To quote: "The vast majority of people who complain about their factoring company are actually at fault themselves". I believe this is what is known as an 'ad hominem' attack - the person is at fault therefore the claim is faulty, however, in this case the experiences of the other posters cannot simply be dismissed as irrelevant.
It would appear that there are valid reasons to consider alternate strategies for improving cash flow. These include:
- Extra administration required to deal with the factor.
- The risk of alienating your customers because the factor's minimum wage call center keeps harassing them.
- The cost.
- The chance of the factor running off with your money.
Last edited:
Upvote
0
As opposed to them being harrassed by an outsourced credit control company
Now you're just being silly
Upvote
0
Hi Ian,
I'm not in advocating outsourcing credit control at all. I think your customers are your most important asset and that every contact with them needs to be thought about and controlled to produce a positive experience.
And about the factor not paying. My bad. I should have phrased it the way one of the previous posters did - I think 'clawing back' was the term that was used.
So, about the extra administration and the cost and the negative experiences raised by the other posters...?
I'm not in advocating outsourcing credit control at all. I think your customers are your most important asset and that every contact with them needs to be thought about and controlled to produce a positive experience.
And about the factor not paying. My bad. I should have phrased it the way one of the previous posters did - I think 'clawing back' was the term that was used.
So, about the extra administration and the cost and the negative experiences raised by the other posters...?
Upvote
0
Our experience of it:
Good
We got a big job which meant incurring costs well in advance of due dates on payments. Factoring allowed us to do the job, then receive some money against the invoices immediately to cover the costs. The result allowed us to grow and expand our service provision. Without the factoring we couldn't have done the job as the costs would have been too high.
Lloyds have not been harassing customers as some previous posts imply about factoring companies in general. Also, they tend to ring customer accounts departments to verify random invoices rather than our contact there who rarely even knows we use factoring. We've also asked Lloyds not to chase late payments so they don't - they just send a monthly statement and if they've not been paid after three months refer it back to us to chase, which is what I asked them to do.
Bad.
Getting out of the damn thing again is hard. We've managed to get it from £25k down to about £6k now so hopefully will be able to cancel it soon.
Sometimes their decision making process is bizzare. E.g. we were owed 3 x £20k invoices from one company and were at our factoring limit. I asked for a £5k extension and Lloyds themselves knew the client and that the client paid OK. Their response though was that they would increase the limit, but only after we'd been paid. At which point we didn't need the increased limit, etc....
Overall, its been very useful, it allowed us to increase the size of companies we can supply and it smoothed out cashflow over the recession. Their charges are more than reasonable for the service and its only a month's notice to get out of it again. Quite happy with it.
Good
We got a big job which meant incurring costs well in advance of due dates on payments. Factoring allowed us to do the job, then receive some money against the invoices immediately to cover the costs. The result allowed us to grow and expand our service provision. Without the factoring we couldn't have done the job as the costs would have been too high.
Lloyds have not been harassing customers as some previous posts imply about factoring companies in general. Also, they tend to ring customer accounts departments to verify random invoices rather than our contact there who rarely even knows we use factoring. We've also asked Lloyds not to chase late payments so they don't - they just send a monthly statement and if they've not been paid after three months refer it back to us to chase, which is what I asked them to do.
Bad.
Getting out of the damn thing again is hard. We've managed to get it from £25k down to about £6k now so hopefully will be able to cancel it soon.
Sometimes their decision making process is bizzare. E.g. we were owed 3 x £20k invoices from one company and were at our factoring limit. I asked for a £5k extension and Lloyds themselves knew the client and that the client paid OK. Their response though was that they would increase the limit, but only after we'd been paid. At which point we didn't need the increased limit, etc....
Overall, its been very useful, it allowed us to increase the size of companies we can supply and it smoothed out cashflow over the recession. Their charges are more than reasonable for the service and its only a month's notice to get out of it again. Quite happy with it.
Last edited:
Upvote
0
Factoring is bad?? Heck must tell that to the approximate 18,000 and increasing businesses signed up and successfully using it.
Factoring is bad when you abuse it and don't fully understand the way it works. You will always get some smart alex trying to 'fiddle' the system.
Aside from that though, factoring is ideal for many industries that even with excellent credit control, will struggle with cashflow, and here I am thinking of those who deal with local councils as an example. Despite the best will in the world, the best credit controller, the best debt chaser, local councils and local government will work to their rules as will any of the big boys that you 'unfortunately' manage to get as clients. Which means they will pay you at the very last moment and NOT 30 days and sometimes not even 60 days.
And what about those in recruitment who employ temps and have to pay them every week ... you can't say to your staff, heck, everyone is paying late therefore this week you aint getting paid.
So factoring does have its place in the business world, it serves a very good purpose and if anyone is interested in taking it up, I would suggest approaching someone such as Ian, who knows the market and who can match your business with the right factor.
And yes credit control is fantastic, but there ARE sometimes when it just don't work and with the best will in the world guys, bad mouthing something you do not know inside out, is slightly mealy mouthed.
Not everyone in a fur coat is a wolf you know!!
Factoring is bad when you abuse it and don't fully understand the way it works. You will always get some smart alex trying to 'fiddle' the system.
Aside from that though, factoring is ideal for many industries that even with excellent credit control, will struggle with cashflow, and here I am thinking of those who deal with local councils as an example. Despite the best will in the world, the best credit controller, the best debt chaser, local councils and local government will work to their rules as will any of the big boys that you 'unfortunately' manage to get as clients. Which means they will pay you at the very last moment and NOT 30 days and sometimes not even 60 days.
And what about those in recruitment who employ temps and have to pay them every week ... you can't say to your staff, heck, everyone is paying late therefore this week you aint getting paid.
So factoring does have its place in the business world, it serves a very good purpose and if anyone is interested in taking it up, I would suggest approaching someone such as Ian, who knows the market and who can match your business with the right factor.
And yes credit control is fantastic, but there ARE sometimes when it just don't work and with the best will in the world guys, bad mouthing something you do not know inside out, is slightly mealy mouthed.
Not everyone in a fur coat is a wolf you know!!
Upvote
0
G
GRDCredit
- Original Poster
- #25
What do you mean - all Government departments pay within 10 days don't they?
http://www.berr.gov.uk/aboutus/prompt-payments/guidance-for-suppliers/page48569.html
Upvote
0
I must say we have done quite a bit of business with councils and they have always paid within 30 days.
I must apologise if my previous comments put someone off from factoring. I feel it has it place if: -
-the business suffers from restricted cashflow
-it is properly managed
-has the resources (time and manpower) to cope with the additional paperwork
- can afford the fees
I suppose in an ideal world, factoring would not be needed, but in this current climate, with companies less inclined to give credit, if you need equipmment/stock to complete a job, you have limited resources and your customer is not prepared to pay pro forma then this is an option.
With regards to the OP - still not sure how it would allow your customers to take longer to pay?
I must apologise if my previous comments put someone off from factoring. I feel it has it place if: -
-the business suffers from restricted cashflow
-it is properly managed
-has the resources (time and manpower) to cope with the additional paperwork
- can afford the fees
I suppose in an ideal world, factoring would not be needed, but in this current climate, with companies less inclined to give credit, if you need equipmment/stock to complete a job, you have limited resources and your customer is not prepared to pay pro forma then this is an option.
With regards to the OP - still not sure how it would allow your customers to take longer to pay?
Upvote
0
Yes local councils and the Utility suppliers (even though now private companies) all pay quickly .
The ones that string it out are the biggest names a householder would visit on a weekly or daily basis .
Upvote
0
- Original Poster
- #30
As has been pointed out, factoring is not the solution to helping your customers spread their payments. Sales aid finance might be if you are selling capital equipment to industry. Would be happy to chat if this is likely to help.
I do enjoy these 'factoring ruins your business' discussions! If you take time and advice to fully understand the costs and terms of your agreement, (and work within the covenants) there is no reason that factoring can damage a business.
There aren't many brokers or lenders out there who wouldn't encourage you to seek professional advice; if you are ever expcted to sign on the spot, run a mile!
I do enjoy these 'factoring ruins your business' discussions! If you take time and advice to fully understand the costs and terms of your agreement, (and work within the covenants) there is no reason that factoring can damage a business.
There aren't many brokers or lenders out there who wouldn't encourage you to seek professional advice; if you are ever expcted to sign on the spot, run a mile!
Upvote
0
Latest Articles
-
What Makes a Small Business Actually Sellable?There's a question that a lot of small business owners never think to...- Ozzy
- Updated:
-
Why Your Team Keeps Asking the Same Questions (And What to Actually Do About It)Every small business owner knows the moment. You're halfway through...
- Ozzy
- Updated:
-
At What Point Do Courier Losses Just Become a Cost of Doing Business?If you sell physical products online, you already know the feeling. You...
- Ozzy
- Updated:
-
What I Wish I'd Known Before Using AI in My BusinessSomewhere between the headlines promising AI will transform everything...
- Ozzy
- Updated:
-
Is AI Making the Internet Worse?It started with a comment about music. @JEREMY HAWKE , a courier...
- Ozzy
- Updated: