Morning People!!

Just a quick question for any small business owners around Sheffield. Do any of you use "factoring" companies in connection with your business.

If so, are there any recomendations?? Who's good to use? Who should I avoif like the plague?

Also, any ideas of what criteria your business has to fulfill in order to use a factoring company??

Thanks!!!

hi, not used these myself, but know someone who did and had a nightmare experience. They hold money back when they want, so everything is basically on their terms.

Factoring is a more expensive option than a normal bank overdraft.

I think factoring is just about OK if you see it as an alternative to a bank overdraft and don't also have a bank overdraft.

The benefits are that as soon as you send an invoice to a customer the factoring company advance, or "loan", you up to 90% of the invoice value.

However if the customer does not pay the factoring company you have to pay the factoring company back the money advanced.

This could be difficult if you have spent the money.

When this happens you may be tempted to obtain a bank overdraft, and then all of a sudden you have a bank overdraft and a factoring debt to repay.

As both would be secured against your home, it could leave to serious implications.

It would be better to try and build up a good relationship with your customers, maybe getting them to set up direct debit or standing order payments. Much cheaper in the long run too.

Factoring is the start of the 'slippery slope', best left alone if at all possible. Try to get extended credit with your suppliers first, that way you remain in the driving seat.

Thanks guys, the factoring was something to use more in the early stages, to help with cashflow while waiting for my invoices to be paid in the "30 days" which seem to be standard to my industry.

I wouldnt consider using them long term, I already have business that I can invoice, just waiting for it is proving to be problematic..

Thanks guys, the factoring was something to use more in the early stages, to help with cashflow while waiting for my invoices to be paid in the "30 days" which seem to be standard to my industry.

I wouldnt consider using them long term, I already have business that I can invoice, just waiting for it is proving to be problematic..

We used Bibby factors and they were fine for what we wanted. I found them easier to work with than the major banks' factoring arms. There's quite a few good smaller independent factoring companies about now that you should be able to build a relationship with. (PM me if you want contacts)

Factoring can work for small companies, especially in the early days, but you do have to retain control of your sales ledger. As has been stated, if your customers don't pay then the money will be withdrawn from your availability. In my experience factoring companies do very little else but send month end statements and reminders out.

Also if you are looking at it short term have an exit strategy. It's very easy to become reliant on the cash. As the company grows be strict with yourself about how much money you draw down from your factor. Otherwise you will need to replace factoring with another loan.

Another point is the perception of factoring. Having that assignment notice on your invoices is like having "We're only a very small operation with not much cash" tattooed on your forehead!

Thats really helpful thank you. using the factoring company would DEFINATELY only be in the short term, I've already put a plan of action down to keep track of how much I draw down from them, and the reasons for doing it, I also have an amount in mind that i need to reach as a milestone for not using factoring any more.

And the "Not much cash" thing is unfortunate, but I dont believe its the sort of thing that will particularly bother my current clients, And as far as new clients are concerned, by the time they see one of my invoices, and are aware that I'm using factoring, the business with them has already been done!!!

Also if you are looking at it short term have an exit strategy. It's very easy to become reliant on the cash. As the company grows be strict with yourself about how much money you draw down from your factor. Otherwise you will need to replace factoring with another loan.

If you use factoring this is an important point.

To leave the factoring you will have to effectively buy back the debt from the factoring company.

You would have to look at the small print of the contract.

Some people think an easy way to leave factoring is to start to invoice customers themselves. Then they let the old invoices be paid to the factoring company, the new invoices be paid to themselves, and over a few months the factoring company balance will be nil.

But a lot of agreements say that all invoices have to be issued through the factoring company. If you invoice a customer directly you are in breach of the factoring agreement and you may be asked to pay the balance in full.

Even to think about factoring for only a short term needs a lot of thought and planning to build up surplus funds to leave the factoring company.

Avoid any '' non recourse '' factor like the plague.

Why avoid non recourse? I've just done a quick bit of reading up on it, so I kinda know what it is. But I get the impression that you have a personal reason for saying that and I'm trying to learn from other peoples experiences.

So, if its ok for you to explain why you said that, I'm definately interested. PM me if you would rather.

Be VERY VERY careful about the wording of any factoring agreement you sign and make VERY VERY sure your exit strategy will work. There will likely be all sorts of little clauses that give the factor the right to terminate the agreement (ie. make you repay any advances PLUS COSTS) and some of them will inevitably be triggered from time to time. Eg. If your customer pays you instead of the factor and you don't IMMEDIATELY pay the money on to the factor for whatever reason - cashflow humps, your bank being awkward - whatever.

And one other little thing... factoring companies are not covered by any regulatory body like the FSA or the banking ombudsman. If they come at you you're on your own!

My advice would be to avoid em like the plague - all of them!