Factoring problems to watch out for

Factoring and invoice discounting facilities often provide immediate payments of up to 85% of sales invoices as and when they are raised – at least that is what the marketing brochures will tell you but unfortunately the truth can be far removed as the factoring companies bring to bear a whole raft of excuses in order to keep the funding levels as low as possible and therefore minimize their risk.

These issues with the levels of funding received as opposed to what was anticipated happen as the factoring company brings credit limits and concentration limits into play by setting unreasonably low limits resulting in the expected 80% – 85% advance that was agreed upon actually turning out to be 70% – 75% or less in reality.

In addition the whole cost of factoring can end up wildly more than originally forecast too with extra charges that the client was unaware of when they signed the agreement and interest charges higher than forecast due to the factoring company’s poor credit control as the longer the customers take to pay their accounts the more interest will be payable.

We have made some notes on the various pitfalls that one could possibly come up against starting off with the poor service levels offered by some factoring companies.