Factoring – issues with funding

It is a common misconception that factoring companies would like to lend as much money as possible so that they can increases their own profits but in actual fact the reverse is often true as the factoring companies make their profits from the factoring commissions charged so will try and keep the funding levels as low as possible in order to minimize their own risk.

One of the ways that factoring companies keep their funding levels, and therefore risk, low is by establishing credit limits on the customers and refusing to fund any invoices in excess of that limit. Whilst that may seem to be a sensible option the reality is that some of the credit limits are ridiculously low and recent problems that we have seen include one well known factoring company setting a very low credit limit on it’s own parent bank whilst another restricted sales to Essex County Council.

Another limit that may cause problems is the concentration limit whereby the factoring company will not fund any excess invoices when a customer balance exceeds a percentage of the total outstanding debts. This will not cause a problem if the customer balances are well spread but there are many situations where a company has a major customer who takes a considerable portion of the total sales and these companies can often come unstuck if they are with the wrong factoring company.

A third way of reducing the funding is by clawing back any funds paid against disputed invoices. This is another scenario that sounds sensible in theory but in practice can cause problems with some factors’interpretation of a dispute as that often includes someone asking for a copy invoice.

There are too many factoring companies out there whose performance doesn’t match up to their self promotion in a variety of ways but that is where Factoring Solutions can help.

 Interested in how our factoring broking services can benefit your business?

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