Invoice discounting / Factoring
Discussion
Mel, thanks for your very candid insight. It is a brave person who is prepared to offer up the experience of their own misfortune in the hope others gain from it and avoid similar pitfalls. Glad to hear it has now worked out for you.
FWIW, we saw almost a carbon copy of your experience with a sub-contractor of ours. We had a very good look inside what was going on, because before they folder we were considering taking them over but, same deal; bank, factors and accountants (they get in on the act too, raking off a nice fee for monthly or quarterly accounting) were all screwing the firm into the ground. (There was no way to save it but, the good news for some of the guys was we bought some plant and machinery from the receiver, set up an operation of our own and so at least a few jobs were salvaged.)
FWIW, we saw almost a carbon copy of your experience with a sub-contractor of ours. We had a very good look inside what was going on, because before they folder we were considering taking them over but, same deal; bank, factors and accountants (they get in on the act too, raking off a nice fee for monthly or quarterly accounting) were all screwing the firm into the ground. (There was no way to save it but, the good news for some of the guys was we bought some plant and machinery from the receiver, set up an operation of our own and so at least a few jobs were salvaged.)
Digga said:
Mel, thanks for your very candid insight. It is a brave person who is prepared to offer up the experience of their own misfortune in the hope others gain from it and avoid similar pitfalls. Glad to hear it has now worked out for you.
FWIW, we saw almost a carbon copy of your experience with a sub-contractor of ours. We had a very good look inside what was going on, because before they folder we were considering taking them over but, same deal; bank, factors and accountants (they get in on the act too, raking off a nice fee for monthly or quarterly accounting) were all screwing the firm into the ground. (There was no way to save it but, the good news for some of the guys was we bought some plant and machinery from the receiver, set up an operation of our own and so at least a few jobs were salvaged.)
although i have no direct experience of a factoring company etc, my best man has and it ended in his company folding.FWIW, we saw almost a carbon copy of your experience with a sub-contractor of ours. We had a very good look inside what was going on, because before they folder we were considering taking them over but, same deal; bank, factors and accountants (they get in on the act too, raking off a nice fee for monthly or quarterly accounting) were all screwing the firm into the ground. (There was no way to save it but, the good news for some of the guys was we bought some plant and machinery from the receiver, set up an operation of our own and so at least a few jobs were salvaged.)
they were also convinced that factoring was a good idea when the bad times bit. and used a high st bank as their choice.
they used to not only create a branded product for their customers, they also stored it for them and shipped as and when required (at the request of the client), they never charged (stupidly to me) for this and suddenly the bank decided they would not let them invoice for products that had not left their 2nd site.
this was several thousand pounds worth of stock and despite them being less that 3 months work away from the black again, the bank closed it all down.
it felt like the bank had changed the rules right when they seemed to be on the up oddly.
he has restarted with some of the guys he used to work with, but they are only 6 people now with one small premises, instead of 48 people and 2 large factories.
jesta1865 said:
it felt like the bank had changed the rules right when they seemed to be on the up oddly.
b
ds.A fellow PHer, a business property surveyor, told me, about 10 years back, that he suspected a rather nasty conflict of interests existed between certain banks and certain commercial surveyors who also happened to run their own property businesses on the side. He reckoned values were tweaked to trigger loan defaults (through breach of covenants) and thereby enable the surveyors property portfolio to bag a bargain. Win win for the b
ds.mel said:
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.
This is so true.Just playing devil's advocate a little here.
The common theme to these factoring bad-boy stories is a) a struggling company and b) surprise when the factorer charges what they contracted to charge from the outset.
If you are running a company then you surely read agreements like this?
Hence the bills cant be a surprise and you cant blame the bills for any subsequent demise.
Again, speaking for myself, we have had some tough times through the years, particularly during the recession and the factorers have always been helpful and gone above and beyond.
I think it is probably just down to individual companies.
The common theme to these factoring bad-boy stories is a) a struggling company and b) surprise when the factorer charges what they contracted to charge from the outset.
If you are running a company then you surely read agreements like this?
Hence the bills cant be a surprise and you cant blame the bills for any subsequent demise.
Again, speaking for myself, we have had some tough times through the years, particularly during the recession and the factorers have always been helpful and gone above and beyond.
I think it is probably just down to individual companies.
blindswelledrat said:
Just playing devil's advocate a little here.
The common theme to these factoring bad-boy stories is a) a struggling company and b) surprise when the factorer charges what they contracted to charge from the outset.
If you are running a company then you surely read agreements like this?
I think you oversimplify a little, athlough in broad terms quite a few stories may fall into that category.The common theme to these factoring bad-boy stories is a) a struggling company and b) surprise when the factorer charges what they contracted to charge from the outset.
If you are running a company then you surely read agreements like this?
Firstly, you have too look at the why and the how of a lot of these deals that got done in and around the crunch. For a kick off, it was a lucky firm that was not, even if only temporarily, adversely affected by the crunch. Then you have to look at the way the banks behaved before the crunch, where overdraft limits and agreements were rolled over for eyars, decades without comment or advice or any [i]real[i/] warning that they actually are repayable on demand. What happened in many cases was an overdraft would be removed or reduced and these 'agreements' were put in place - it was Hobson's choice for many businesses. none of this is a secret to anyone who watched the excellent program on BBC about Lawrence Tomlinson's report into RBS.
It makes PPI look like a minor glitch. These were tough tactics.
Summary: https://www.youtube.com/watch?v=s8kBLDS588E
blindswelledrat said:
If you are running a company then you surely read agreements like this?
If you are running a company properly you'll be able to chase your own invoices in.Using factoring companies prove you have poor cash flow and a poor credit control department.
I regard them as parasites to struggling firms.
Digga said:
think you oversimplify a little, athlough in broad terms quite a few stories may fall into that category.
Firstly, you have too look at the why and the how of a lot of these deals that got done in and around the crunch. For a kick off, it was a lucky firm that was not, even if only temporarily, adversely affected by the crunch. Then you have to look at the way the banks behaved before the crunch, where overdraft limits and agreements were rolled over for eyars, decades without comment or advice or any [i]real[i/] warning that they actually are repayable on demand. What happened in many cases was an overdraft would be removed or reduced and these 'agreements' were put in place - it was Hobson's choice for many businesses. none of this is a secret to anyone who watched the excellent program on BBC about Lawrence Tomlinson's report into RBS.
It makes PPI look like a minor glitch. These were tough tactics.
Summary: https://www.youtube.com/watch?v=s8kBLDS588E
A link from that pageFirstly, you have too look at the why and the how of a lot of these deals that got done in and around the crunch. For a kick off, it was a lucky firm that was not, even if only temporarily, adversely affected by the crunch. Then you have to look at the way the banks behaved before the crunch, where overdraft limits and agreements were rolled over for eyars, decades without comment or advice or any [i]real[i/] warning that they actually are repayable on demand. What happened in many cases was an overdraft would be removed or reduced and these 'agreements' were put in place - it was Hobson's choice for many businesses. none of this is a secret to anyone who watched the excellent program on BBC about Lawrence Tomlinson's report into RBS.
It makes PPI look like a minor glitch. These were tough tactics.
Summary: https://www.youtube.com/watch?v=s8kBLDS588E
https://www.youtube.com/watch?v=etFxbWPdxaY
Jesus Christ, that must be criminal!
blindswelledrat said:
A link from that page
https://www.youtube.com/watch?v=etFxbWPdxaY
Jesus Christ, that must be criminal!
I know, but..https://www.youtube.com/watch?v=etFxbWPdxaY
Jesus Christ, that must be criminal!
a.) they got away with it
b.) like you, a lot of other people have no idea
As I said earlier, other banks were busy in other scams, not just RBS. I personally know a former area business manager for A.N. other big bank who quit and set up on his own as an IFA because of this.
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've lost a business because of factoring and made millions in another because I had an ID facility.
The difference is down to the reason for use. If you are in financial difficulty then factoring will be terrible for you- it both extends the inevitable but also makes things worse.
On the flip side if you are a growing business with a shortage of working capital then an ID facility can naively accelerates your growth. In this case the costs are irrelevant to some extent because the cost of NOT growing due to cash shortage is far more expensive.
Invoice discounting should be thought of as a very flexible e cheap overdraft, nothing else.
The difference is down to the reason for use. If you are in financial difficulty then factoring will be terrible for you- it both extends the inevitable but also makes things worse.
On the flip side if you are a growing business with a shortage of working capital then an ID facility can naively accelerates your growth. In this case the costs are irrelevant to some extent because the cost of NOT growing due to cash shortage is far more expensive.
Invoice discounting should be thought of as a very flexible e cheap overdraft, nothing else.
swerni said:
The company I worked for used confidential invoice discount through the 90's, there is no way we could have built the business we did without it.
With massive growth and very large revenues, it would have been impossible.
Why not? Lots of very big companies grow rapidly without factoring. With massive growth and very large revenues, it would have been impossible.
If the company isn't set-up properly for growth then I can see how you can get in a mess.
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