Case Study 16 – factoring with the wrong factoring company can have painful consequences
The Wrong Factoring Company
We have two contrasting case histories that show how careful one must be to join up with the right factoring company as despite the assumption to the casual observer that all factors offer the same thing, that couldn’t be farther from the truth and making a mistake could have painful financial consequences.
A couple of months ago a small manufacturing company turning over £400,000 per annum decided that factoring was the way to go and he was recommended (not by us) to what is probably the largest and best known of the independents. Within a short space of time it was apparent that they had made a major mistake as the factoring company placed restrictions on their major customer and wouldn’t fund any invoices in excess of £20,000 on that customer despite the average balance owing from them being over £30,000 and the customer itself being a major £50m turnover concern.
The company realising that they had made a mistake and that the restrictions placed on their facility by the factoring company were crippling their cash flow approached ourselves and we sourced them a replacement facility with a company that was more commercially aware and who would fully fund the invoices.
Unfortunately the incumbent factoring company wanted not only the total of their Minimum Annual Fee for early release but also a sizeable early termination fee too which is something that we had never come across before but assume has been recently introduced as they were losing too many clients.
When the size of the release package was queried with the factoring company their attitude was that they could charge what they wanted and the client could either take it or leave it and it would cost them £8,000 if they wanted to go.
At the same time as this company was making their painful financial mistake we were approached by a manufacturing company of similar size and we sourced them a facility with a factoring company that prides themselves on their levels of service and undertakes that if any client is unhappy for any reason within the first three months they would be allowed to transfer their facility to another factoring company and not only would they not be charged anything but would have all of the factoring commissions paid to date refunded to them.
We did contact our client after two months to ensure that they were happy and they were but it’s comforting to know that if for any reason they were not, it wouldn’t cripple them financially to change factoring companies.