"Why should one want to terminate a factoring facility anyway"?

Many factoring companies including case studies in their marketing material will include at least one that came from another factor indicating that there is a considerable merry go round of companies changing from one factoring company to another.

This is mainly for one of two reasons:-

Firstly; the level of service is not always up to expectation. 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 income than it’s overheads and therefore the more clients that one person can handle, the more profitable the account becomes for the factor and conversely the more ineffective the credit control.

Most factoring companies will only finance an invoice for a finite period, typically until it becomes 90 days overdue then they will require the client to repay their investment in the debt back to them.

They will then keep the debt on their books (without financing it) in exchange for a re-factoring fee, which is typically 0.5% to 1% per month

This can be a lucrative business for some factors, and certainly is no incentive to collect the outstanding debts in quickly.

Please see next page for details of problems with unapproved debts and concentration limits

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