factoring companies - a guide to the pitfalls

Factoring companies are now being used by over 42,000 businesses in the UK, generating a combined turnover in excess of £118billion, according to statistics released by the Factors & Discounters Association. These figures are increasing quarter on quarter.

An interesting statistic (unfortunately not available) would be how these companies select the factoring companies with which to entrust the financial health of their business, as selecting the wrong one could have devastating effects.

It would seem that the majority of  companies using invoice factoring to speed up cash flow take the simplest route and sign up with the subsidiary of their clearing bank ( approx 70% ) without first establishing whether or not there are more suitable options available.

The rest entrust their company's financial well being to factoring companies selected in a variety of ways ranging from looking in Yellow Pages -which is surely why there are so many invoice finance companies beginning with the letter A - to asking their accountant or insurance broker, who's probable knowledge of the industry comes from the factoring company salesman who has most recently canvassed him.

It should be straightforward but in reality it isn't and as we have very real concerns with the way that some factoring companies operate we have set out details of the possible pitfalls in the following pages including such matters as "Why some factors appoint Administrators or Receivers to their clients" and "How some factors abuse the Minimum Annual Fee" to "Why some factors offer such a poor service."

Please see next page for details on selecting the factoring company