Minimum Annual Factoring Fee - the small print
We were approached by a company unhappy with the operation of their factoring facility due to the fact that 75% of their business was to one customer (a multinational telecoms giant) and the factoring company would only fund the invoices to a maximum of 50%.
As the company were recruitment
contractors needing to pay their
contractors at the end of each month
it was proving difficult to finance
the business with the factoring
company being so restrictive. The
factor offered to increase the
funding limit to 75% on this
particular customer's invoices in
return for a second charge on the
directors home.
Having contacted ourselves, we sourced a replacement facility with a factoring company willing to fund this particular debtor up to 80% but the stumbling block proved to be the extortionate fees demanded by the existing factoring company to transfer the facility away.
The existing facility provided for three months notice to be given to expire on the anniversary date of the agreement but as the company missed the deadline by a month they were told that they would have to pay the Minimum Fee for the whole of the second year.
There are setup costs involved in every factoring facility which the factor will amortize in the first year but we cannot think of any valid reason why a Minimum Annual Fee should be necessary in the second and subsequent year except as a lever to keep hold of clients that wish to transfer to other factoring companies and in our opinion this is highly immoral.
As a matter of interest the factoring company that we sourced as a more suitable alternative doesn't operate in this manner.
Factoring
Factoring is now considered to be mainstream lending and has replaced the traditional bank overdraft in many cases but unlike other forms of funding, factoring includes a large element of service and whilst one might think that all factors are the same the truth is very different with many of the major players offering a very poor quality of service that is as likely to hold back their clients' growth as it would advance it.
As we have some very real concerns about the way some of the well known factoring companies operate we have set out some of the pitfalls including details on selecting the factoring company and why the cheapest factoring quote often works out more expensive in practice.
Invoice Discounting
Invoice discounting is currently being used by almost 14,000 companies generating combined turnovers of nearly £115 billion and it is this method of invoice finance that is experiencing the most growth at the moment. Our reservations about the activities of some invoice discounters are as valid as in factoring and we would be grateful if you could click on the link to see our areas of concern about invoice discounting
Trade Finance
Trade Finance is an area of business funding that co-exists alongside bank overdrafts, factoring and invoice discounting providing specialist finance to facilitate trade and you can read more about the types of facilities that we can arrange by clicking on the link for trade finance pages
.