Factoring Services
Using factoring services
You can see that generating cash flow gives advantages in financing your business. But what things do you need to know when you work with factoring companies?
1. Customer relationships
If a factoring service is liaising with your customers, agree on the approach that a factor takes, before customer communication takes place. This will avoid any customer relationship problems.
That said, you may well experience some resistance from some of your customers who prefer to liaise with you instead of a factor. This is a natural response. But be prepared with your response to your customers - if this occurs.
2. Business constraints
Factoring can impact on your business methods. For example:
- factors apply credit limits to selected customers and
- non-recourse factoring involves factors pre-authorising customers - which can create delays.
3. Business size to suit
If you're using an invoice discounting provider - your business needs to be big enough to gain advantage. You might find yourself paying for collection services which you think you don't really need and this may well be because your scale of operations isn't large enough to make the gains that a larger company would.
4. Ending factoring services
It's not always easy closing factoring agreements. That said, realise that:
- you can only get out of agreements by rebuying your sales ledger or changing factoring provider and
- you'll need to set up alternative finance to meet the sudden fall in working capital.