Credit factoring?
- Thread starter Dandaps
- Start date
philliosmaximus
Moderator
never used credit factoring Dandaps how does that work mate ?
i was thinking of using a sawn of shot gun to improve my cash flow:wondering:
i was thinking of using a sawn of shot gun to improve my cash flow:wondering:
Rigger
Moderator
Steer clear Dandaps, 
They have more tricks than a bunch of monkeys to charge your outfit money
Been there done it, and I was dealing with one of the so called blue chip factoring companies
They have more tricks than a bunch of monkeys to charge your outfit money
Been there done it, and I was dealing with one of the so called blue chip factoring companies
Dandaps
Well-known member
- Joined
- Oct 5, 2009
- Messages
- 858
- Reaction score
- 0
Thanks for the info Rigger.
Phil when you raise an invoice to your customer with 30 or 60 days terms the factor company pays you say 95% of the invoice straight away and then collects the rest from your customer when the invoice becomes due. Saving you having to wait.
Was considering it.
Think I'll go with the sawn of shotgun route then.
Phil when you raise an invoice to your customer with 30 or 60 days terms the factor company pays you say 95% of the invoice straight away and then collects the rest from your customer when the invoice becomes due. Saving you having to wait.
Was considering it.
Think I'll go with the sawn of shotgun route then.
philliosmaximus
Moderator
So they charge you 5% ?
Dandaps
Well-known member
- Joined
- Oct 5, 2009
- Messages
- 858
- Reaction score
- 0
Was looking at these guys they are local to me. Noticed there offices near our yard.
www.silverburnfinance.com
Think it the percentage depends on who you go with.
www.silverburnfinance.com
Think it the percentage depends on who you go with.
Last edited:
R
ragscaff
Guest
Be very careful mate, looks good but can trip you up.
Ragscaff
Ragscaff
paddy carr
Moderator
Rigger
Moderator
Dandaps
please google "factoring pitfalls" and have a good read before you sign up to anything
here is just one I pulled up
Avoiding The Pitfalls of Entering into a Factoring Agreement
This article sets out a number of the common pitfalls that businesses can encounter when they enter into a factoring agreement to improve the cash flow of their business. It also seeks to give some helpful advice as to how you can avoid these pitfalls when you enter into a factoring agreement.
1. Miss Use of The Funds Raised Through The Factoring Agreement
The way that factoring works is that the business receives a pre-payment against the value of it's outstanding sales invoices. The value of these invoices is the working capital of the business i.e. the funds that need to be used to pay suppliers, staff, expenses etc. One common misuse of factoring is that a company will take the initial payment received from the factoring company, which can be substantial, and use the money for some kind of capital expenditure such as the purchase of equipment or machinery. The effect of this is that a large amount of the working capital within the business is then tied up.
THE ANSWER: The funds released through a factoring facility should be used as working capital within the business, if the business needs to raise finance to buy equipment or machinery, asset based finance (leasing, hire purchase etc) that are more suited to this kind of expenditure and will have a much reduced impact on working capital.
2. High Costs of Factoring
As with any finance there is a cost associated with accessing the funding and the facilities of some factoring companies are expensive, particularly when compared with their competitors.
THE ANSWER: If the business shopped around and seeks a number of different quotations, it is possible to find some very reasonable deals, it is just a case of knowing where to look!
3. Choosing The Wrong Factoring Company
It may appear that there will be no difference between factoring companies. Many people see factoring in a similar way to how they see their mortgage, once the finance is in place then it just ticks along in the background having very little impact on them. This is not the case for factoring. The factoring company has a close and ongoing relationship with your business in that they are providing a collection service in respect of your outstanding sales invoices. This means that the factoring company also has interaction with your customers. For this reason, it is highly important to choose a company that can provide a professional yet effective credit control service that will suit your business.
THE ANSWER: Once again, it is a case of looking around to find a factoring company whose style best suits your business rather than just choosing the cheapest quotation you can find.
4. Hidden Factoring Charges
We often speak to prospective clients that are dissatisfied with their current factoring company because they feel that the company have levied all sorts of hidden charges which have pushed up the cost.
THE ANSWER: Before entering into a factoring agreement, you should ask the factoring company to provide a full statement of any additional charges that could be incurred so that you can be fully aware of the costs that you will incur for additional services if you require them.
5. Leaving Things Too Late
The stronger the position of your business the better the deal will be that you can command from a factoring company. If you wait until your company is in dire straits the factoring company will seek to charge a fee that they feel reflects the additional risk they are taking.
THE ANSWER: If you plan ahead and arrange your factoring agreement before you get into cash flow difficulties you will be in a much stronger negotiating position in respect of rates and terms.
6. Overstating Your Financial Projections
Another common problem that we have seen is that a business will come up with a set of financial projections that are beyond what they are likely to be able to achieve. Often they hope that this will secure them a cheaper deal with the factoring company. If they then arrange their factoring agreement based on these projections, whilst the factoring company may give them a beneficial rate, that reflects the high level of turnover that they are projecting, they are also likely to implement minimum fees that also reflect the high level of turnover. If the business then fails to achieve the turnover that has been projected they may still incur the minimum fee which is then disproportionate to the volume of trade.
THE ANSWER: The answer is simple, be realistic in the projections that you produce and on which the factoring agreement is costed.
7. Fresh Air Invoicing
The term "fresh air invoicing" means raising an invoice that does not have any underlying trading transaction i.e. no goods or services were delivered. Sometimes when a business gets into difficulty they may seek to raise some fresh air invoices in order to receive additional funding from the factoring company. In many cases, the client company only intends to do this for a short period of time whilst they overcome a short term problem and in many cases they fully intend to repay the factoring company at some point in the future. However, once they breach the terms of the factoring agreement in this way it often becomes difficult to repay the funding that has been raised and the company gets into more and more trouble and they resort to raising more and more fresh air invoicing in order to maintain their cash flow.
THE ANSWER: The answer is not to get into this situation in the first place. Many factoring companies will be sympathetic if they are approached for additional help when you are encountering a cash flow problem. In many cases, the factoring company will be prepared to provide additional funding in the form of, for example, a short term overpayment in order to see you through the problem."
__________________________________________________________________________________________________
Rigger
Also bear in mind if your client does not pay the factoring company on time, they will either charge you again, or hold back payments from other clients that have paid or demand you pay them back the monies they advanced you in the first place The process is taken from you and you lose control of your cashflow and invoicing
please google "factoring pitfalls" and have a good read before you sign up to anything
here is just one I pulled up
Avoiding The Pitfalls of Entering into a Factoring Agreement
This article sets out a number of the common pitfalls that businesses can encounter when they enter into a factoring agreement to improve the cash flow of their business. It also seeks to give some helpful advice as to how you can avoid these pitfalls when you enter into a factoring agreement.
1. Miss Use of The Funds Raised Through The Factoring Agreement
The way that factoring works is that the business receives a pre-payment against the value of it's outstanding sales invoices. The value of these invoices is the working capital of the business i.e. the funds that need to be used to pay suppliers, staff, expenses etc. One common misuse of factoring is that a company will take the initial payment received from the factoring company, which can be substantial, and use the money for some kind of capital expenditure such as the purchase of equipment or machinery. The effect of this is that a large amount of the working capital within the business is then tied up.
THE ANSWER: The funds released through a factoring facility should be used as working capital within the business, if the business needs to raise finance to buy equipment or machinery, asset based finance (leasing, hire purchase etc) that are more suited to this kind of expenditure and will have a much reduced impact on working capital.
2. High Costs of Factoring
As with any finance there is a cost associated with accessing the funding and the facilities of some factoring companies are expensive, particularly when compared with their competitors.
THE ANSWER: If the business shopped around and seeks a number of different quotations, it is possible to find some very reasonable deals, it is just a case of knowing where to look!
3. Choosing The Wrong Factoring Company
It may appear that there will be no difference between factoring companies. Many people see factoring in a similar way to how they see their mortgage, once the finance is in place then it just ticks along in the background having very little impact on them. This is not the case for factoring. The factoring company has a close and ongoing relationship with your business in that they are providing a collection service in respect of your outstanding sales invoices. This means that the factoring company also has interaction with your customers. For this reason, it is highly important to choose a company that can provide a professional yet effective credit control service that will suit your business.
THE ANSWER: Once again, it is a case of looking around to find a factoring company whose style best suits your business rather than just choosing the cheapest quotation you can find.
4. Hidden Factoring Charges
We often speak to prospective clients that are dissatisfied with their current factoring company because they feel that the company have levied all sorts of hidden charges which have pushed up the cost.
THE ANSWER: Before entering into a factoring agreement, you should ask the factoring company to provide a full statement of any additional charges that could be incurred so that you can be fully aware of the costs that you will incur for additional services if you require them.
5. Leaving Things Too Late
The stronger the position of your business the better the deal will be that you can command from a factoring company. If you wait until your company is in dire straits the factoring company will seek to charge a fee that they feel reflects the additional risk they are taking.
THE ANSWER: If you plan ahead and arrange your factoring agreement before you get into cash flow difficulties you will be in a much stronger negotiating position in respect of rates and terms.
6. Overstating Your Financial Projections
Another common problem that we have seen is that a business will come up with a set of financial projections that are beyond what they are likely to be able to achieve. Often they hope that this will secure them a cheaper deal with the factoring company. If they then arrange their factoring agreement based on these projections, whilst the factoring company may give them a beneficial rate, that reflects the high level of turnover that they are projecting, they are also likely to implement minimum fees that also reflect the high level of turnover. If the business then fails to achieve the turnover that has been projected they may still incur the minimum fee which is then disproportionate to the volume of trade.
THE ANSWER: The answer is simple, be realistic in the projections that you produce and on which the factoring agreement is costed.
7. Fresh Air Invoicing
The term "fresh air invoicing" means raising an invoice that does not have any underlying trading transaction i.e. no goods or services were delivered. Sometimes when a business gets into difficulty they may seek to raise some fresh air invoices in order to receive additional funding from the factoring company. In many cases, the client company only intends to do this for a short period of time whilst they overcome a short term problem and in many cases they fully intend to repay the factoring company at some point in the future. However, once they breach the terms of the factoring agreement in this way it often becomes difficult to repay the funding that has been raised and the company gets into more and more trouble and they resort to raising more and more fresh air invoicing in order to maintain their cash flow.
THE ANSWER: The answer is not to get into this situation in the first place. Many factoring companies will be sympathetic if they are approached for additional help when you are encountering a cash flow problem. In many cases, the factoring company will be prepared to provide additional funding in the form of, for example, a short term overpayment in order to see you through the problem."
__________________________________________________________________________________________________
Rigger
Also bear in mind if your client does not pay the factoring company on time, they will either charge you again, or hold back payments from other clients that have paid or demand you pay them back the monies they advanced you in the first place The process is taken from you and you lose control of your cashflow and invoicing
Last edited:
R
ragscaff
Guest
That is one of the main problems. You know your customers & you always have those who will pay late but you knoiw they will always pay!!
Rigger is correct, dont go near them as they will tie you up in knots. Had a mate who used one of the bigger banks for this service and got himself in a real mess. They will confuse you with all sorts of ****. Also it is near impossible to leave them once you are signed up.
They dont understand how the scaffold industry works with percentage payments for erect and dismantle. When your customer pays you for the erecting, they will call him and harrass him for the dismantle payment even though the job is not ready to come down. The result is that you will have pissed off customers calling you every day.
For your own sake mate stay away...it sounds good i know but there is no free lunches.
They dont understand how the scaffold industry works with percentage payments for erect and dismantle. When your customer pays you for the erecting, they will call him and harrass him for the dismantle payment even though the job is not ready to come down. The result is that you will have pissed off customers calling you every day.
For your own sake mate stay away...it sounds good i know but there is no free lunches.
I must admit to have looked at this a few times but I suspect Rigger is correct. Interesting that it works for scaffy, but if I'm honest I think it spoils the relationship between scaff and client especially when 80% or more is repeat business. It could make you less attractive to a client even if you are the cheapest and best. Just a bit too risky for my liking.
Let us know what you decide and how you get on if you do go with it, I would be very interested to hear how your clients reacted to it.
Let us know what you decide and how you get on if you do go with it, I would be very interested to hear how your clients reacted to it.
Good to hear Scaffy, the latest to offer us their services was a large bank. I keep getting close to doing it but can't quite seem to grab the bull by the horns and take it on. Maybe I should speak with a few regular customers and see how they feel.
Riskdisk
Member
- Joined
- Oct 27, 2010
- Messages
- 20
- Reaction score
- 0
There is some really useful information posted on here by Rigger about Factoring. We speak to businesses every day who are using Factoring and find it really difficult to get away from, it's good for a short term cash fix but then they have you.
One alternative that our subscribers find really useful is to carry out a credit report on a business before you offer credit to make sure they have the funds to pay you back. We have recently introduced two new features to our product. Firstly, Payment Pattern information. This shows you how many days on average beyond the standard terms agreed a business takes to pay it's customers. Secondly, we have added Payment Rating information. This is where you can request feedback from other people who have recently dealt with the same company.
All of the above will help improve cash flow in the long run. Please feel free to take a look at our site Company Credit Reports | Business Credit Check with Riskdisk or giving us a call on 01623 869999 for more information.
One alternative that our subscribers find really useful is to carry out a credit report on a business before you offer credit to make sure they have the funds to pay you back. We have recently introduced two new features to our product. Firstly, Payment Pattern information. This shows you how many days on average beyond the standard terms agreed a business takes to pay it's customers. Secondly, we have added Payment Rating information. This is where you can request feedback from other people who have recently dealt with the same company.
All of the above will help improve cash flow in the long run. Please feel free to take a look at our site Company Credit Reports | Business Credit Check with Riskdisk or giving us a call on 01623 869999 for more information.