Business finance is seldom a source of great contention, certainly not outside the inner sanctum of those offering services, seeking loans or aiming to differentiate their offering.
However, mention the word 'factoring' and a whole myriad of opinions will appear; the Bloke in the Pub will have more views on factoring than traffic wardens and tax collectors combined. They will invariably include 'my mate whose business went bust because he used factoring' (this 'mate' is probable a relative of the apocryphal mate who only survived an accident because he wasn't wearing a seat belt, and a distant relative of the one who smoked 100 full-strength cigarettes a day and lived to be 140).
Factoring is often used as a generic term for any facility involving advances against receivables; though in reality true factoring will include an element of collection and credit control.
It is of course utter nonsense to suggest that borrowing money against invoices or using third-party collections (unless they are truly incompetent) will drive a viable business into the ground, though there is some tentative statistical truth behind the assertions.
Myth 1. Businesses which use factoring usually go bust: Cast your mind back to the last recession, (not the one we apparently emerged from, but the last real one in the early '90s).
Whilst we complain now that banks aren't lending, the behaviour of banks in that recession was utterly deplorable. Your friendly bank manager was transferred to another branch and your new manager rang to introduce himself & invite you to a meeting. In high hopes of some support and perhaps a spot of lunch, you rolled up to the meeting to meet a stony-faced character who swiftly got to the point and advised you that the bank were not comfortable with you sector/business/utilisation and were - with immediate effect - withdrawing your overdraft facilities.
I kid you not - in the mid '90s these were commonly known as 'hatchet managers' and any business person you spoke to was adamant that they would never use an overdraft again.
The factoring industry stepped up to the mark, and became a refuge for many of those businesses who, under extreme pressure, made a move without much research and in the quickest possible time. Inevitably, in a recessionary climate and against a backdrop of forced moves, many of these businesses ultimately failed.
Factoring wasn't the cause of the failure but it was their last visible financial act prior to their demise. (Other, less visible moves might have included running up vast credit card debt, remortgaging the family home - often without their partner's consent - and refinancing every solid asset) however there has never been an urban myth that businesses who remortgage always go bust - factoring is highly visible so carries this stigma alone.
Myth 2: Your customers will stop paying / ordering from you if you use factoring:
Very hard to quantify this one, however it might be true that some of your customers will have bought into Myth 1 above. Good communication, as ever, can allay a lot of worries on this score (as can a wise choice of factor).
When it comes to payment terms, you can divide customers into 3 categories:
Factoring is not a product, it is a range of products and services, some of which may suit you whilst others may not. Most important, it is crucial that - like any service - it is bought on value and relevance and never on the basis of price alone. There are approximately 100 factoring companies out there, each of whom has specialities, market niches and strengths and weaknesses.
A good factoring broker (like ours!) will ask a lot of questions before assessing the best facility and home for your needs. They will also be prepared for you to ask a lot of questions (and to provide you with coherent answers!).
Should you choose not to go the broker route, here are some pointers for you:
DO:
For more information contact Business Funding Portal
However, mention the word 'factoring' and a whole myriad of opinions will appear; the Bloke in the Pub will have more views on factoring than traffic wardens and tax collectors combined. They will invariably include 'my mate whose business went bust because he used factoring' (this 'mate' is probable a relative of the apocryphal mate who only survived an accident because he wasn't wearing a seat belt, and a distant relative of the one who smoked 100 full-strength cigarettes a day and lived to be 140).
Factoring is often used as a generic term for any facility involving advances against receivables; though in reality true factoring will include an element of collection and credit control.
It is of course utter nonsense to suggest that borrowing money against invoices or using third-party collections (unless they are truly incompetent) will drive a viable business into the ground, though there is some tentative statistical truth behind the assertions.
Myth 1. Businesses which use factoring usually go bust: Cast your mind back to the last recession, (not the one we apparently emerged from, but the last real one in the early '90s).
Whilst we complain now that banks aren't lending, the behaviour of banks in that recession was utterly deplorable. Your friendly bank manager was transferred to another branch and your new manager rang to introduce himself & invite you to a meeting. In high hopes of some support and perhaps a spot of lunch, you rolled up to the meeting to meet a stony-faced character who swiftly got to the point and advised you that the bank were not comfortable with you sector/business/utilisation and were - with immediate effect - withdrawing your overdraft facilities.
I kid you not - in the mid '90s these were commonly known as 'hatchet managers' and any business person you spoke to was adamant that they would never use an overdraft again.
The factoring industry stepped up to the mark, and became a refuge for many of those businesses who, under extreme pressure, made a move without much research and in the quickest possible time. Inevitably, in a recessionary climate and against a backdrop of forced moves, many of these businesses ultimately failed.
Factoring wasn't the cause of the failure but it was their last visible financial act prior to their demise. (Other, less visible moves might have included running up vast credit card debt, remortgaging the family home - often without their partner's consent - and refinancing every solid asset) however there has never been an urban myth that businesses who remortgage always go bust - factoring is highly visible so carries this stigma alone.
Myth 2: Your customers will stop paying / ordering from you if you use factoring:
Very hard to quantify this one, however it might be true that some of your customers will have bought into Myth 1 above. Good communication, as ever, can allay a lot of worries on this score (as can a wise choice of factor).
When it comes to payment terms, you can divide customers into 3 categories:
- Close customers who pay you promptly out of respect and perhaps mutual dependency: These are presumably customers with whom you are in close contact and you should have the opportunity to discuss your decisions and to reinforce your working relationship.
- Customers who 'play the game' and pay according to a pecking order: These will certainly need to be managed, and the choice of factor or factoring product should pay close attention to this area.
- Large customers who pay on their terms: are highly unlikely to adopt different terms for direct or non-direct payment - their policy will be, for example, to pay on the last day of the month following invoice, whoever the invoicer might be.
Factoring is not a product, it is a range of products and services, some of which may suit you whilst others may not. Most important, it is crucial that - like any service - it is bought on value and relevance and never on the basis of price alone. There are approximately 100 factoring companies out there, each of whom has specialities, market niches and strengths and weaknesses.
A good factoring broker (like ours!) will ask a lot of questions before assessing the best facility and home for your needs. They will also be prepared for you to ask a lot of questions (and to provide you with coherent answers!).
Should you choose not to go the broker route, here are some pointers for you:
DO:
- Be prepared with a detailed list of questions, and expect coherent answers.
- Have a 'beauty parade' of 3 or more prospective suppliers.
- Take time to evaluate the full package being offered.
- Seek recommendations and testimonials.
- Consider as many variables as possible.
- Buy on headline price.
- Be persuaded to sign documentation before you have had time to read it fully.
- Accept verbal promises.
- Listen to people in pubs.
For more information contact Business Funding Portal
