Invoice Factoring – any recommendations?

Hello small business folk

Looking at Invoice Factoring or something similar as a way of smoothing out cashflow. In particularly I'm looking to factor occasional invoices rather than all of them, so something a bit more pay-as-you-go rather than an annual contract. I tend to bounce around between smaller jobs with low outlay and a high margin and great big jobs with a comparatively modest margin but an outlay of maybe £40-£50K, its the latter where factoring would come in handy.

from what I've seen of factoring;

a) they want all your work through them (and I can see that your customers might be confused by gettign invoices via different sources).

b) if it's less than £100k a year they're not interested.

c) they're happier to deal with supply of goods rather than servcies.

d) the cost of the factoring is more determined by your clients creditworthiness than yours.

Only factor if you absolutely, really, can't live without, have to.

Only factor if you absolutely, really, can't live without, have to.

Whats your experience MF? And what alternatives?

I do not have direct experience as I have always been warned away from them – after all you are giving someone else precious profit and, which I see as being the worst aspect, it sends out the message to clients that you do not have the cash flow to run your business without outside help.

The alternative is to use an overdraft facility when you have to.

As wwaswas said.
We factored through Barclays, it was bloody dreadful.
Their own credit checks were worthless ( i now owe thousands as it all lands back in your lap if they don;t get the money)
Their call centres constant calling of my customers cost me business. Some only came back as long as they were not factored.
Sometimes their take can mean the difference between winning or losing a job, as you have to factor their percentage into the price.
Factoring as I found out has a certain stigma to it.
But the biggest problem is that you sign up to factoring and you have to maintain a level invoicing through them, so if work slows it'll still cost. Then you might find the customers you want to factor won't be accepted.
Barclays finally 'released' me from my contract it cost my small business 12k a year.
I've now scaled down my business and only get involved with work I can afford, and I'm better off for it.
Sorry thats a bit of a random spurting……

Plus I will confess, and this was my own fault.
The factoring bank will basically give your customer 90 days to pay. This made us a bit lazy regards chasing money, and if you hadn't recieved payment the bank will recourse the money i.e suddenly thousands willbe missing from your account.
As you probably know, if you ain't been paid on time you probably ain't gonna get paid at all.

Venture Finance is very flexible with what invoices you factor. Worth giving them a call to discuss

Invoice finance is a better option than invoice factoring, although ime this is usually an all or nothing agreement.

It would help you if when you quote for jobs you factor in the likely payment schedule and/or put it into your contract. Also look at calculating the likely actual profit, taking into account the payment schedule.

All a factor will do is take your profit.

Thanks for the input everybody (I rudely posed a question then realised I was supposed to be 30 miles away so had to rush out)

Clients getting rattled by the factors isn't a huge issue as its mostly big public sector clients I work for, the individual contracting me and the individual getting it in the neck over payments probably never know or meet each other. I suffer from unnessasary delays in payment, usually due to the individual contracting me not having a clue how to put payments into action so the invoice just sits in their in-tray for weeks. Particularly annoying as they've usually contacted me too late on a highly time pressured job and I've turned myself inside out in order to deliver it, they seem to be less adrenalin-driven to figure out how to process the payment though. But I never have a problem with non-payment.

I thought there was a code of conduct for public sector organisations about paying on time? I can't find it on the net but I am sure I remeber they were supposed to do this to help SMEs Use it as a stick to beat them?

Edit – maybe it was a scottish government commitment but
http://www.payontime.co.uk/whypay/whypay_main.html
Double edit
WHAT IS THE POLICY ON PAYMENTS?
The Executive believes in the importance of paying all suppliers on time,
and to this end it is signed up to the CBI Prompt Payment Code. The
Excutive's aim is to pay all invoices on time.This will usually be 30 days from
the date of receipt of a valid invoice or satisfactory receipt of the goods or
services, whichever is the later. It is not the Executive's practice to pay
earlier than the 30 days, unless previously agreed with a supplier.

CBI code with a grinning madleson[/url]

Don't do factoring. I have experience of working for Bibby Factors and the sales peoples used to refer to it as 'dirty' factoring. They will offer it to just about anyone but they will bleed you dry and they basically own you, your house, and every asset you have and they WILL take it if it goes tits up.

Unless you are in the top 3 of their client base you will not get the service you are paying for thru the nose either, and the credit controllers are so heavily preasurred that they will upset all your customer base.

The alternative..Try assett finance instead…BUT NOT FACTORING:)

To be honest TJ, the time it takes them to pay isn't (often) out of line, but its still time, whether its a small amount of time or a large amount of time doesn't matter. The presumption with public sector clients is that the supplier will provide goods on credit, regardless of whether the supplier is offering credit or not. Its funny how many public sector organisations I've worked with who find themselves blacklisted by their regular suppliers not because they don't pay/pay very late, but because they pay within their own terms rather than within the terms their suppliers offer.

Because the nature of my work is very diverse I'm almost always sourcing services and materials on a once-only basis, so I'm having to get my supplies on a cash basis, but provide my service on a credit basis, so for 30 days from invoice plus the time between me buying things, doing things to them and delivering them I'm a bit cash poor, if the jobs bigger than usual, or if two or three jobs are running in parallel then it gets a bit sketchy, as they are now with three jobs all kicking off at the same time, to be delivered at the same time and all quite spendy.

No personal experience, but I've worked In collections / recoveries for over 20 years and from what I've seen I wouldn't touch in invoice factoring with a bargepole, for reasons as above.

I'm resolved not to factor

blessed be the STW

I agree with TJ – public sector are meant to pay promptly. We deal with the NHs lots and, so long as I have an O/N, payment is usually paid within two or three weeks even though our terms are 30 days.

my pal went for factoring and realised they just milk you for everything you earn.

they weren't chasing for money proper like and he ended up paying back money to them that they'd paid.

They half heartedly went on a ring around to get themselves paid but accepted "no" all too readily.

AVOID if at all possible or you will regret it.

Have a look for UK Business Forum. There are a few on there who work in this kind of service and would be able to give you some more info.

skidartist
You are in exactly the same position as me.
A large part of my business WAS supplying industry with electrical goods. And I often like you had to pay up front as it was a one off or I'd never traded with the supplier before. Then like you I'd have to offer 30 days.
The problems stack up when you are late being paid yet still expected to come up with the goods.
TJ the worst offender that I ever supplied were the local authorities, allthough signed up to 30 day credit agreements their average payment time was 96 days.
This is why I scaled down, chasing the big jobs doesn't automatically mean earning good money.