Case Study 14 – factoring facility limits can be used to stifle growth
An importer and distributor of furniture had been trading successfully for three years, the last two of which had been with the factoring subsidiary of a well known high street bank.
Turnover had grown year on year and last year’s turnover of £1m was forecast to increase by 50% to £1.5m in the current year but it would seem that their factoring company were trying their best to restrict the company’s growth by capping their facility limit.
The excuse given by the bank was that the furniture industry was going through a bad time and they wished to limit their exposure. Most economists would tell you that poor trading conditions were the cause of the furniture industry financial problems yet here was the company’s own bankers trying their hardest to stifle their own successful client’s growth and profitability by promising to fund their sales at 80% of invoice values but only if they didn’t sell too much.
We see far too many occasions of bank owned factoring companies appearing to offer the earth but delivering far less using a variety of measures hidden away in the small print but luckily in this case the company approached ourselves and we were able to introduce them to a factoring company that lived in the real world where 80% meant 80%
We have very real concerns with the way that some invoice finance companies operate which is why we have set out details of the possible pitfalls in the pages of this website including such matters as “Why some factors offer such a poor service” and “Why the cheapest quote often works out much more expensive in practice”
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