Factoring Reviews – An Annual Event?
An interesting discussion with a local(ish) engineering business that has used Factoring for just under 10 years via its bank’s subsidiary. The proprietor of the business, by his own admission, has barely reviewed the facility and although the facility works well in terms of both funding support and service levels, a quick calculation reveals that the business has paid just short of £50,000, over the 10 years, more than a comparable competitor provided facility.
For this business Factoring works really well, a succession of different bookkeepers has been offset by the continuity the factoring company has brought to collections and overall sales ledger management. Although the price paid has been high the business owner remains keen on the service and in need of the 90% funding facility against invoices he uses.
We have been able to provide indicative terms for a competing facility which will bring considerable savings compared to the bank delivered facility. In all likelihood the business will stay with the bank but our involvement will ensure the bank lowers its pricing to reflect market competing pressure.
There’s a couple of lessons here, firstly the business in question will happily talk through the benefits of Factoring and is appreciative of the finance and sales ledger management support without which the business would not have achieved the sales levels at which it now runs. Even though the business has paid over the market rate over 10 years it is still only in the position it is in thanks to the Factoring facility.
Secondly, the lesson is to review, at least annually, the charges levied. In this example an annual review, which in all probability would have led to price cuts, would have seen the business with a materially increased cash resource. Banks and invoice financiers in general are reluctant to lose good, safe clients so will work hard to ensure the client stays.
An independent brokerage can assist with an annual review, impartially weighing up competing options available and suggesting alternatives only as and when appropriate. Its a very competitive market, there’s nothing to lose in formally reviewing and possibly quite a bit to gain.
A day of meetings in Birmingham included a trip to the new Grand Central at New Street Station with the transformation from a dark and dingy station into an enormous light area bringing a fantastic improvement to the Second City.