Factoring Pitfalls

factoring pitfallsFactoring companies frequently don’t offer the levels of service that they promise.

This is one of the factoring pitfalls; and a good many of our enquiries are from companies that are unhappy with the service levels provided by their existing factoring company and asking us to place their business with one that actually does deliver on their promises.

Most companies, having read the marketing material expect that the “professional approach” of the factor’s credit control department would decrease the amount of outstanding invoices and they become understandably concerned when the opposite happens.

In many cases the “professional approach” of the factoring company consists of sending out computer generated credit control letters and very little else. The factoring company’s profit relies on generating a higher level of factoring commission income than it pays out in overheads with the major overhead being staff salaries.

The more clients that one person can handle, the more profitable the account becomes for the factor but conversely the more ineffective the credit control becomes.

Factoring company ineffective credit control

A few factoring companies pride themselves on their high service levels which will include effective sales ledger management and credit control and one of the questions that one should always ask a prospective factoring company is how many clients each client manager and credit controller will be looking after.

The factoring company with the high service levels will have staff handling far fewer clients than the industry average with the idea in mind that offering a professional sales ledger administration will reduce the average period of credit taken by customers which will have the dual effect of reducing interest costs and also reducing the risk of bad debts.

Most factoring companies incorporate a refactoring fee into their charging structure whereby they impose an additional charge on any invoices that become 90 days overdue. Obviously too many invoices like that will dramatically increase the overall cost of factoring so it’s in the company’s interest to ensure that the factoring company they elect to go with has an effective credit control policy to minimize the likelihood of extra charges being imposed.

In general the invoice financiers that rank the best in terms of sales ledger administration levels are amongst the independent sector with the bank owned factors having a poorer reputation with some just sending out monthly statements with very little other action taken and with the best will in the world many companies won’t pay if they aren’t asked.

Needless to say as a long established leading factoring broker we are well aware which factoring companies offer a high quality service and refuse to deal with the rest so why not contact us on 01827 707680 to discuss the various options completely free of charge and without any obligation.