Factoring - too good to be true?

tocadast

Posting on behalf of a friend who's a plumber.

Basically he has carried out and invoiced a client (a builder) for £100k worth of work and has not been paid. The builder has not gone bust although rumour/talk is that they may.

My mate met with a Lloyds TSB Factoring last week, gave them all relevant paperwork, invoices outstanding etc. and today they 'phoned him to say that if he instructed them that they (Lloyds) would pay mate £90000 in about a week's time as long as he took out an insurance policy costing around £500. Apparently the builder has good credit worthiness and for that reason Lloyds are happy to take on the case.

Obviously Lloyds will then pursue the builder and if/when they get paid the £100k they get to keep £10k of it for their service. The insurance policy is in place just in case the builder goes into liquidation prior to Lloyds getting the money out of him.

My mate had all but given up all hope of recovering ANY money from the builder so this seems like a dream come true to him.

Anybody got any points that he should consider and there MUST be drawbacks....mustn't there!!????

Many thanks

MORPH3US

Sounds like your mate should snap their hand off and take them up on the offer mate.

Not sure why they need the insurance policy though, surely if the builder does go bust then they have lost nothing, so what is the insurance policy covering? unless you mean that your mate gets the £90,000 even if they go bust.

tocadast

Thanks for the reply. As far as I can gather the insurance policy covers Lloyds in case the builder goes into liquidation.

DKLS

When I worked at RBS factoring division, there was a clause that if RBS couldnt successfully recover the monies, they would give the debt back to you, and demand their 85-90% of invoice value back.
Beware of what the salesmen say, sounds like a potentially difficult case to recover, and from chasing smaller Ltd companies in the past, its all to easy to declare insolvancy and set up next week.

Edit: check the small print, and double check the small print, at RBS, they sold the service like you had your own personal debt collector, erm not quite, I had over 350 clients to chase for, So was never able to offer a service I would be happy with.

mbamick

You might want to check out this basic guide to Factoring and Discount Invoicing. The RBS comment appears to be Recourse Factoring, whereas the lloyds insurance policy would suggest non-recourse factoring.

http://www.businesslink.gov.uk/bdotg/action/layer?topicId=1073924180&r.l1=1073858790&r.l3=1074002362&r.t=RESOURCES&r.i=1073792172&r.l2=1074453392&r.s=e

aimingforadebtfreelife

My firm uses HSBC Invoice Finance - say you do the deal for £100k, HSBC lends you £90,000 (90%) the next day - when you bank the £100k you have the access to the other £10k. If the debt goes uncollected for over 90 days then they withold that amount from you. You can debt collect yourself or pay extra and let the bank take the risk