Anbody used invoice factoring?

delbert30

Hi

I am looking into invoice factoring so that my cash flow is better, has anybody used this before? I was wondering how much percentage do the average bank take for doing this and if it worked out a good thing for other businesses.

brightonman123

I did some temp work for Close Invoice Finance, in Hove- basically invoices get assigned ('sold') to the factor co, who pay you a porportion upfront, and the rest when customer pays (less ongoing service charge and percentage). - rates depend on amount of turnover, and nature of the risk, payment terms alreafy give nto customers etc.

There are/were 2 other firms I have heard of- International Factors which were part of Lloyds Bank, and a place in Worthing (Griffin Factors? they were part of Midland/HSBC..)

main benefit is there is usually one person dedicated to your ledger, and can spend more time chasing overdues than you might want to..

cons may be high level of security they may require if credut rating not so good.. if using home etc as collateral, that could be taken if your customer go under, and there isnt enough 'good customers' income to any cover losses.. also if not a big turnover a/c, it may not get the constant attention you may need..

if you are based near brighton, and need someone to help with chasing bad a/cs, please let me know (i need a job!)

whitewing

What is the nature of your business delbert? It may help with more suggestions.

Procrastinator333

A few questions that would help give a better answer...

What is your approx turnover?
What is the size of your average invoice?
How many invoices do you issue a month?

A few other things to consider:
Don't forget ANY debt factoring company will at the very least be pushy with your customers - be sure you don't mind that.

You could also offer a discount to you customers - Pay within 10 working days and receive a 5% / 10% discount.

Why not set up some generic templates:
Letter 1 - Please note your payment is due in the next 5 working days.
Letter 2 - Please note your payment is now overdue
etc etc...

Then just print off a label with customers address on it and pop some in the post each week. This would take a little while to set up, but once working, it would be a reasonably efficient way of reminding people.

anniecave

I work for a debt collection company (ironically) in their finance department

One of our suppliers does invoice factoring and I personally find it quite offensive. They send out nasty letters and have no ability to put the account on stop when we ask for a copy invoice. So we get even more increasingly nasty letters, and they lie on the phone to me. They read back the notes from the previous time I rang in one time and they'd totally twisted what I said so it implied I said something totally different to what I did say.

Basically it's like having a debt collection agency chasing your debts right from the first instance they get involved.

I would personally do credit control internally first (employ someone even if only part time if necessary) then use an external debt collection company only if you need to.

If you're not careful you may damage your relationship with your customers.

socrates

brightonman123 wrote: »

I did some temp work for Close Invoice Finance, in Hove- basically invoices get assigned ('sold') to the factor co, who pay you a porportion upfront, and the rest when customer pays (less ongoing service charge and percentage). - rates depend on amount of turnover, and nature of the risk, payment terms alreafy give nto customers etc.

There are/were 2 other firms I have heard of- International Factors which were part of Lloyds Bank, and a place in Worthing (Griffin Factors? they were part of Midland/HSBC..)

main benefit is there is usually one person dedicated to your ledger, and can spend more time chasing overdues than you might want to..

cons may be high level of security they may require if credut rating not so good.. if using home etc as collateral, that could be taken if your customer go under, and there isnt enough 'good customers' income to any cover losses.. also if not a big turnover a/c, it may not get the constant attention you may need..

if you are based near brighton, and need someone to help with chasing bad a/cs, please let me know (i need a job!)

No disrespect - never ever ever use this Company.

Go for a smaller company - google the subject - there are brokers who take your basic requirements and then match you up to a company that will suit your requirements - they get paid by the other side.

Never give personal guarantees on any contract - and negotiate hard

slipp_digby

anniecave wrote: »

I would personally do credit control internally first (employ someone even if only part time if necessary) then use an external debt collection company only if you need to.

If you're not careful you may damage your relationship with your customers.

I would agree 100% with annies excellent post.

Avoid factoring if you possibly can. These companies are often taking quite a small percentage of the invoice value, so therefore there is a limit to what they can actually do to recover it in a cost effective manner.

In real terms these are likely to be cheap, easy things which you can do more effectively internally - like chasing by phone and letter and if needs be, take small claims action/recovery of interest if required.

A third party debt recovery service is often going to hit your customer hard and often and hassle them into paying. There is a real risk that you will eventually annoy your clients.

Depending upon the number of invoices you might be able to get a credit controller to work a few hours a week for you chasing debts. It will take a bit of organisation however.

You might want to check the details of any agreements with your customers, some may state in there terms and conditions that you can't 'assign' or 'factor' debts to a third party.

brightonman123

fair comment, though in defence of factor co's, they are taing on the risk ofa firms customers, so in their interest to make sure every bill is paid as soon as possible- on/after due date.. some suppliers werent so squeaky clean either, mind!

socrates

My customers were NHS - it was all about the allocation - they just tended to allocate against a customer account rather than against a particular invoice.

By the end it was a complete mess - ended up suing them and getting an out of court £25k settlement plus costs!

greyteam1959

Yes I also would agree with Annies post.....
And my experience of dealing with companies that use factoring ???
Its usually ( although I am not suggesting in this case ) a sign that things are going pear shaped and that the company using factoring is on its last legs !!

Keeping_Positive

Using Invoice factoring is not always a sign of a company going under its another form of financing that works for many companies small to large.

Ref debt chasing, many companies will offer a service where the client chases their own debt. For slightly larger companies there is invoice discounting (ID) that is a confidential service that the clients customers will not know of the facility.

Factoring and ID work for many types of business and not for others.There are many different banks/companies offering these services so look round can get several quotes.

If you want anymore info please PM me. I do work for an ID/Factoring company but am not interested in recruiting anyone just offering info about the industry if wanted.