Invoice discounting / Factoring
Discussion
We use https://www.marketinvoice.com/home. Good online service, prompt payment, and no personal guarantees.
528Sport said:
Hi,
Anyone use a factoring discounting service ?
Would you use one to speed up cashflow?
Cheers
They are a monumental waste of money imho. They all have flashy websites and promise the earth but when you dig deep into their often hard to find T&Cs you'll discover that they provide very little and are very choosy whether or not they'll deal with your customers if they don't have a perfect credit rating. You can carry out the same checks yourself so it boils down to whether you want to give away a not insignifcant percentage of your income for getting ~ 85% of your money a bit sooner. Depends on your turnover but you'll be looking at anything from 1.5% to 4% above LIBOR plus 0.5-3% of your annual turnover.Anyone use a factoring discounting service ?
Would you use one to speed up cashflow?
Cheers
Whenever I receive an invoice from a supplier that uses factoring I just assume that they are cash strapped and not long for this world. I know this is pure blind prejudice, but maybe I'm not the only one.
Back in the olden days, when I was an accountant, one of my clients used Confidential Invoice Discounting, which was like factoring but the customers were not made aware of it - they sent payments to the company raising the invoice rather than the factoring company.
Back in the olden days, when I was an accountant, one of my clients used Confidential Invoice Discounting, which was like factoring but the customers were not made aware of it - they sent payments to the company raising the invoice rather than the factoring company.
Several of our suppliers have used these services, they seem to last about 6 months and then i get new direct payment details from them and they drop the factoring.
Why they drop them i don't know, but they are also the companies that will discount for payment in advance, and i like discounts.
Why they drop them i don't know, but they are also the companies that will discount for payment in advance, and i like discounts.
This:
And this:
I also had a conversation with the MD of a very cash strapped customer, back in the dark, post-crunch days. I'd contacted him regarding his account and he very patiently and candidly explained (as a good few other customers and suppliers did back then) how his bank had summarily reduced his overdraft limit and replaced it with a factoring/discounting facility of "theoretically" the same size as the reduction. The Devil is in the detail with these things though; he said the charges were higher and also that his accounts people had to do more work, prepping the invoices to send to the factor and then also ending up having to chase debts themselves if they went over an arbitrary 30 days term after which the factor deemed them 'delinquent'. Can be a bit of a snake pit.
jamesh764 said:
Whenever I receive an invoice from a supplier that uses factoring I just assume that they are cash strapped and not long for this world. I know this is pure blind prejudice, but maybe I'm not the only one.
(You're not.)And this:
Vixpy1 said:
Several of our suppliers have used these services, they seem to last about 6 months and then i get new direct payment details from them and they drop the factoring.
Why they drop them i don't know, but they are also the companies that will discount for payment in advance, and i like discounts.
It's a PITA for our accounts always having to change bank details and keep up with which factor is representing what supplier.Why they drop them i don't know, but they are also the companies that will discount for payment in advance, and i like discounts.
I also had a conversation with the MD of a very cash strapped customer, back in the dark, post-crunch days. I'd contacted him regarding his account and he very patiently and candidly explained (as a good few other customers and suppliers did back then) how his bank had summarily reduced his overdraft limit and replaced it with a factoring/discounting facility of "theoretically" the same size as the reduction. The Devil is in the detail with these things though; he said the charges were higher and also that his accounts people had to do more work, prepping the invoices to send to the factor and then also ending up having to chase debts themselves if they went over an arbitrary 30 days term after which the factor deemed them 'delinquent'. Can be a bit of a snake pit.
All that jazz said:
528Sport said:
Hi,
Anyone use a factoring discounting service ?
Would you use one to speed up cashflow?
Cheers
They are a monumental waste of money imho. They all have flashy websites and promise the earth but when you dig deep into their often hard to find T&Cs you'll discover that they provide very little and are very choosy whether or not they'll deal with your customers if they don't have a perfect credit rating. You can carry out the same checks yourself so it boils down to whether you want to give away a not insignifcant percentage of your income for getting ~ 85% of your money a bit sooner. Depends on your turnover but you'll be looking at anything from 1.5% to 4% above LIBOR plus 0.5-3% of your annual turnover.Anyone use a factoring discounting service ?
Would you use one to speed up cashflow?
Cheers
Agree about them being selective about how much they fund per client, but it is only the commonsense you should apply yourself as a business owner.
So if your business model involves giving large amounts of credit to companies that on paper are uncreditworthy then factoring is not for you.
blindswelledrat said:
I have used one for the past 16 years and it is infinitely cheaper than overdrafts and other alternatives for me. 1% above libor and 0.2% of turnover is roughly what I pay.
A world apart from the fees I've seen where firm's banks have pushed them into factoring.As for overdraft costs, again, as with factoring, that's also very much dependent on the magnitude of overdraft and quality of collateral.
Im sure you're right in many cases.
We reviewed ours a couple of years ago and the big bank factorers were indeed noticeably more expensive and potentially more restrictive.
There are a lot of smaller independent factorers though, who are much better at being flexible.
For us it just worksand the size and complexity of our ledger means that it actually saves us employing someone to manage it which at our current size means that what we pay in admin costs, we more than save on internal salaries.
It's not for everyone, but it definitely works for some and there is definitely no better way of us financing.
We reviewed ours a couple of years ago and the big bank factorers were indeed noticeably more expensive and potentially more restrictive.
There are a lot of smaller independent factorers though, who are much better at being flexible.
For us it just worksand the size and complexity of our ledger means that it actually saves us employing someone to manage it which at our current size means that what we pay in admin costs, we more than save on internal salaries.
It's not for everyone, but it definitely works for some and there is definitely no better way of us financing.
blindswelledrat said:
For us it just worksand the size and complexity of our ledger means that it actually saves us employing someone to manage it which at our current size means that what we pay in admin costs, we more than save on internal salaries.
I'm sure that, done right, it can have significant advantages for some firms.insurance_jon said:
this is sort of a middle ground https://www.surecollect.co.uk/
That isn't anything like it. That's a kind of credit insurance lite but does nothing to help short term cash flow.been factoring, with insurance, for 14 years with a high street bank. definitely cheaper for me than employing staff to do job + extra risk involved. I used to take the view that if companies factored they were small/poor. now, i see them as 'approved' by the bank, and an extra level of risk is removed.
depending on turnover/risktype, sub 1% service charge, and 2-3% above base (not libor) should be easily achieved. having said that, much higher numbers also exist. and why are some people so concerned about pg's?. if you don't believe in your own company, i.e. yourself, why should anybody else?
depending on turnover/risktype, sub 1% service charge, and 2-3% above base (not libor) should be easily achieved. having said that, much higher numbers also exist. and why are some people so concerned about pg's?. if you don't believe in your own company, i.e. yourself, why should anybody else?
jamesh764 said:
Whenever I receive an invoice from a supplier that uses factoring I just assume that they are cash strapped and not long for this world. I know this is pure blind prejudice, but maybe I'm not the only one
You're not the only one. I deal with Receivers, bankrupt companies and industrial auctioneers all the time, an awful lot of the cases are through the factoring companies pulling the plug on businesses that would have been ok had they traded normally. A printing company that was once part of the group of companies in which mine sat used to print and publish charity Christmas cards. It was very big business but all the costs were incurred between Feb and August with invoices not being paid until Oct - Feb (allowing the charities to keep cash-flow positive). The choice was to work on either an overdraft or factoring and factoring was the cheaper option, simple as that.
It worked very well for many years until in 2010, the bank decided to withdraw the facility for no viable reason and with little notice. With overdraft facilities being hugely limited, the company went under.
It worked very well for many years until in 2010, the bank decided to withdraw the facility for no viable reason and with little notice. With overdraft facilities being hugely limited, the company went under.
StevieBee said:
A printing company that was once part of the group of companies in which mine sat used to print and publish charity Christmas cards. It was very big business but all the costs were incurred between Feb and August with invoices not being paid until Oct - Feb (allowing the charities to keep cash-flow positive). The choice was to work on either an overdraft or factoring and factoring was the cheaper option, simple as that.
It worked very well for many years until in 2010, the bank decided to withdraw the facility for no viable reason and with little notice. With overdraft facilities being hugely limited, the company went under.
Excuse my French but what a bunch of utter, nihilistic It worked very well for many years until in 2010, the bank decided to withdraw the facility for no viable reason and with little notice. With overdraft facilities being hugely limited, the company went under.
s - the bank that is. Care to name them? RBS per chance?I'm afraid that, over the course of the 2008-11 crisis, I heard no end of tales like this. It will take decades for the SME economy to recover IMHO, not least because generations now coming into business-owning/starting age do not have the benefit of the same equity and MEW in their personal mortgages with which to begin.
Digga said:
StevieBee said:
A printing company that was once part of the group of companies in which mine sat used to print and publish charity Christmas cards. It was very big business but all the costs were incurred between Feb and August with invoices not being paid until Oct - Feb (allowing the charities to keep cash-flow positive). The choice was to work on either an overdraft or factoring and factoring was the cheaper option, simple as that.
It worked very well for many years until in 2010, the bank decided to withdraw the facility for no viable reason and with little notice. With overdraft facilities being hugely limited, the company went under.
Excuse my French but what a bunch of utter, nihilistic It worked very well for many years until in 2010, the bank decided to withdraw the facility for no viable reason and with little notice. With overdraft facilities being hugely limited, the company went under.
s - the bank that is. Care to name them? RBS per chance?I'm afraid that, over the course of the 2008-11 crisis, I heard no end of tales like this. It will take decades for the SME economy to recover IMHO, not least because generations now coming into business-owning/starting age do not have the benefit of the same equity and MEW in their personal mortgages with which to begin.
About 15 years ago I took a very large knock that led to some very rocky times, despite an excellent trading history and good security the bank refused to extend the overdraft, but hit me with a big sales pitch about how they didn't really need or want bricks and mortar security but would rather take a security charge on my debtor book, all very well worded and convincing that it was much better for me and they were doing me a favour. Were they my arse, it was the biggest business mistake I've ever made and led to five years of a hand to mouth existence in a hole I was never going to get out of. Fundamentally it was a sound business with sensible margins, good clients and a strong future but once you stripped out the costs of factoring (and it's not just the headline %'s you soon find dozens of other little charges appear) there was simply not enough margin left to ensure reinvestment and growth let alone building any sort of reserves, the bank were simple helping themselves to everything over and above break even point. After five years of hell and having discussed numerous options with a very good accountant I decided to pull the plug and go through a well structured and controlled liquidation and restart, this kept the goodwill of suppliers and customers and allowed the slate to be wiped and to escape factoring.
In hindsight I should have done it much much earlier and if ever I'm unlucky enough to be in the same position again I'd rather go down than factor. Fast forward to today and things are much much brighter, without changing much in the business model (apart from when we get paid it's ours and not through anyone else) the same core business that was being raped by the factors is profitable, growing, cash positive and reinvesting heavily for growth. In my opinion Factors are bottom feeders who pray on the vulnerable and wounded, they have a bomb proof business plan as they have control of the cash so will never lose out, but they'll bleed victims dry till there's nothing left then move onto the next victim.
In hindsight I should have done it much much earlier and if ever I'm unlucky enough to be in the same position again I'd rather go down than factor. Fast forward to today and things are much much brighter, without changing much in the business model (apart from when we get paid it's ours and not through anyone else) the same core business that was being raped by the factors is profitable, growing, cash positive and reinvesting heavily for growth. In my opinion Factors are bottom feeders who pray on the vulnerable and wounded, they have a bomb proof business plan as they have control of the cash so will never lose out, but they'll bleed victims dry till there's nothing left then move onto the next victim.
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