1998- Factoring and How it could Destroy You !

29 04 2008

Of course factoring companies are the best way of releasing and increasing your cash flow for your business. Let’s face it at different times we all will require a cash injection whether that being raised through your existing debtors book or through capital injection..

 Factoring companies are a great way to release up to 90% of your debtor book and you could opt for non recourse factoring which could mean that your risks are insured to a limit set by the factors… So here we go…

I have had good and bad experiences with the factors… My best experience by far was with Close Brothers http://www.closeinvoice.co.uk/ great service, great team….. The worst however was xxxxxxx which at the time part of xxxx….

We had supplied three clients out of 250 active clients, with goods totaling £90k and all got into financial trouble over a period of Three months.. Total ledger was worth £300,000. The Factors were nervous and it was apparent to me that they did not wish to pay to insured debt figure…

We had a very large London Radio station as a client and we were delivery goods to their store on a Friday evening but by the time the driver arrived the stores had closed for the evening (Friday night traffic)…. our driver returned with the goods but we had already batched up our invoices for the week and dispatched them to our Factors….

The factors then came down and ran an audit….. In my eyes their intention was simple “Get out of the contract, find a hole” They did…. we had pre notified an invoice before delivery had been signed for. Or books consisted of quality blue chip and major UK Businesses but they canceled the contract meaning we picked up the 90k bad debt.

This was absolutely appalling. Our account had run cleanly without fault for two years….. It did not break us the Far East Crash did…. So be careful, Banks do not like loosing money….. they give you an umbrella when the sun is out and when it rains they snatch it back!!!!!!!!!!!!

The positives

  1. Increase your cashflow – allowing you to focus on your daily business activities.
  2. Insure your risk – it can cost you but remember if you have a net profit of 10%%, any loss your suffer you will have to write ten times the revenue to recover the loss.
  3. Fees can be negotiated – as you grow and if you have a clean book you can negotiate your fee down.
  4. Your own back end office – if you opt for for confidential factoring your client will not know that you factor and you then collect out your own ledger then pay your factor the money you collect out.
  5. If you do not have a back office then non – confidential factoring can be a great bonus as the factors chase the money that you are owed and this can be an advantage as the factors will apply pressure when you need it.

The Negatives

  1. Some customers can run he factors around and your aged debtor analysis can run out to 60-120 days  increasing the costs that you pay against draw down.
  2. Do not batch up an invoice until the goods have been signed as received
  3. If you sell a product then make sure your terms state that a customer must notify you of shortages within 3 days of delivery
  4. Once your in your in and unless you pay back the advance that they have given you, you cannot get out……
  5. The factors may want a fixed and floating charge over your book and your business

At the end of day choose wisely…. you will hear good and reports but use someone well known and meet your account managers and go to their offices and above all check and double check your systems and procedures.. Keep your operations tight and you will benefit from using factoring services…

I would absolutely use factors again but this time would ensure that we would not make a operational mistake like we did… I also hear that Bibby are running a really good service at present….

Regards

The Unknown Entrepreneur

Advertisements

Actions

Information

5 responses

29 04 2008
Susan Kishner

Nice writing style. I will come back to read more posts from you.

Susan Kishner

29 04 2008
Bad Debt » Blog Archive » 1998- Factoring and How it could Destroy You !

[…] Read the rest of this great post here […]

30 04 2008
Chip

I am sure that with 30% of your customers going bust overnight and pre-invoicing in addition, almost all factoring companies would have done exactly the same thing

30 04 2008
1998- Factoring and How it could Destroy You ! at Uk Banks on The Finance World For News and Information Around The World On Finance

[…] 1998- Factoring and How it could Destroy You ! Of course factoring companies are the best way of releasing and increasing your cash flow for your business. Let’s face it at different times we all will require a cash injection whether that being raised through your existing debtors book or through capital injection..  Factoring companies are a great way to release up to 90% of your debtor book and you could opt for non recourse factoring which could mean that your risks are insured to a limit set by the factors… So here we go… I have had […]

3 06 2008
Factoring Blog - For Small Businesses » Blog Archive » Factoring Invoices - The Unknown Entrepreneur

[…] by a U.K. businessman who goes by the nom de plume of the “Unknown Entrepreneur.” The title of the article is a tad sensational, but the article is actually well-balanced despite sounding negative at […]

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s




%d bloggers like this: