Factoring/Invoice Financing...have you (has your business) done it?

[bramblina]

Dh and I run a business which we are beginning to feel is suffering with cash flow issues. The only way our we see it to use a factoring or invoice financing/discounting company. Trouble is I only see this as the start of a business failing and am quite reluctant to do it. Dh thinks it's a good idea, I've gathered a little advice but only from a factoring company so the info is biased.

Can anyone give me any advice or information, or better still, experience of this?

I had a terrible experience with once company, cost me £600 in lost revenue.

Messed me about something terrible.

But if your need cash recovering could your bank advise a good factor?

PM me if you want the name of the bad company, one of DHs contractors use venture. They seem on the ball.

My husbands company needed to use a factoring company a couple of years ago as they had cash flow issues (customers paying monthly but employees/contractors being paid weekly).

I asked dh his opinion and he has said that sometimes needs must. They had no choice as the bank wouldnt give them a big enough overdraft. It helped his company short term and they now don't need to use the factoring, so it definitely isn't a sign of a failing company.

However, dh said that they messed them around very badly, kept loads of their money - which took ages to sort out and the service was terrible (if you want to know who he used pm me).

The only experience I have is many decades ago with my father's business when it had cashflow problems.

He didn't do it in the end but the one thing I remember is that any business that does this is immediately seen as 'failing' by suppliers and customers alike. The bank/factor tends to get heavy with late paying customers and those customers often turn to other suppliers as a result. Your business is still liable for any bad debts and it generally damages your reputation.

I agree with Fluffy. Banks and factoring companies often mess businesses about a lot once they get their hooks into them with invoice discounting and factoring. It is not a road I would advise anyone going down unless you are 100% certain you have a definite exit strategy in a few months time. It is basically a bridging loan at best and not a long term arangement.

Frankly, I would advise you look long and hard at the business. Collect in the money owed to it and slim it right back. There is no point in extending credit to customers who might not pay and getting into debt. Especially if those customers might not pay in the end.

Factoring has its place, but it is often seen as (and unfortunately sold as) something it isn't.

if your need cash recovering

... then don't use a factor. If your debtors need work to turn them into cash, a factor will charge you heavily for doing that work and/or reject the debtor.

customers paying monthly but employees/contractors being paid weekly

That's a much more appropriate situation (assuming the customers generally pay reliably) as your debtors only need time to turn into cash.

Thank you all very much. I am going to look in to this further tomorrow, and call the bank. I don't feel they are being helpful at all just now and am at the end of my tether with them.

Thanks again everyone.

OP, I worked in acs for a company who used factoring as a source of finance rather than a short term fix. There are a number of stipulations they have such as not having one customer owe more than 30% of the debtors book. They look at your credit control procedures and debt turn. We used HSBC who charged a % of the debtors total per month, an interest charge and £10 per bank transfer fee to draw down the available fundsrom the factoring co. I felt it was expensive but ok for a short term fix but quite tricky to get out ofof, by that I mean you've already been paid 80% of what you are owed, unless you can afford to reduce the % gradually cashflow, you are stuck.

As with everything, you'll get good and bad experiences. But I'd suggest giving it fair consideration as I have had nothing but good experiences with invoice discounting. This form of finance has now overtaken the overdraft as the rinsed source of working capital funding and banks and independents are a lot better than they were 20 years ago. IMO It all depends on how you currently invoice, if for example you have signed PODs or timesheets supporting your invoices you will be fine. However if you have a weak or non existent paper trail which supports your invoices it probably isn't for you. Feel free to PM me if you want any further info.

Rinsed = primary!

Also check out the ABFA website for independent advice. Sorry, can't do link at the mo.