Whilst most factoring companies seem to offer the same product there are many operational differences and we have set out some of the pitfalls and problems that may be encountered in the following pages.

Founder member of the Independent Factoring Brokers Association

factoring pitfalls - case history

factoring case history

Recruitment consultants hiring out temporary staff had annual sales of £2m per annum and had been factoring their invoices with one of the major high street bank owned factoring companies.

The company only dealt with blue chip customers and despite being profitable was constantly struggling with their cash flow. Half of their sales were made to Wm Morrison the supermarket chain and the factoring company had placed a funding limit on this account equivalent to 40% of the total outstanding invoices in an effort to restrict the overall funding to their client.

The factoring company also placed a blanket credit limit of £2,000 on any new customer which they would review after two payments had been received. This limit was imposed irrespective of the credit standing of the company and caused their client financial problems when they received a substantial order from Royal Mail which they couldn’t fund

The directors of the company approached us to ask if there were alternatives to their bank factoring arrangement as they were close to having to cease trading despite being profitable.

They now have a “proper” factoring facility that provides the pre-agreed level of funding on every invoice and are now well set to expand even further.

(back to artificial funding limits)

Factoring and Trade Finance Solutions