Thinking of Factoring – Read On

If you are looking to factor for the first time here are some useful tips


  • The main motive for this type of facility is generating cash, make sure you know how much cash your sales ledger will generate. As brokers we have seen far too many occasions where lenders have quoted 90% but when the day comes the actual amount is much much less
  • Be aware of all the costs – not just the headline service charge & interest rate quoted – this means looking deep into the agreement!
  • Check carefully the base rate applied to the agreement. Lenders will quote an interest charge usually as Base Rate +. Check the base rate applied
  • Make sure you know the full implications of any guarantee you are asked to sign.
  • Check the contract length – do you really need to sign a 3 year agreement?
  • Talk to some existing clients. Any prospective lender should offer you some names, these will obviously be names the lender knows will be favourable but it’s still worth a few minutes. If the lender cant, or wont, then beware!
  • Ask what the average collection period is, Factoring companies should pride themselves on their ability to collect outstanding invoices
  • Find out the actual collection process the Factoring company employs, do they only send letters or will they make phone calls.
  • How easy is it to get out of the contract if you decide it simply isn’t for you.
  • Speak to an independent broker (make sure they are not owned by a Factoring company – some are) to gauge the overall reputation of the company with which you plan to sign up.