The ability to release cash against unpaid invoices undoubtedly can have a positive impact on the cash flow of a business. The extra cash can provide the freedom to grow the business and the added value of having someone chase your debts will also provide a massive bonus and a boost to the business. Typically a factoring facility can release up to 90% of your unpaid invoices with the added benefit of credit control. However if things are not working out how easy or difficult is it to switch factoring companies?
There are so many factoring companies to choose from and not all factoring companies are the same. Some are bank owned, some are independent PLCs and some are small private companies. Which is the best factoring company for you will depend on the turnover, the length of time you have been trading and the profitability for your business. In addition factoring is very much a value added service. Factoring can provide credit control on the back of the funding your invoices. As such there are two elements to the charging. An interest rate at around 1-3 over bank base rate is applied to the money you borrow and there is a service fee for the credit control. For the smaller business this starts at a couple of hundrded pounds per month. The cost of using a factoring company for credit control can be very cost effective compared with the cost of employing a full time credit controller.
However as factoring is not as simple as just borrowing money there are occasions when the relationship between the factoring company and business breaks down to the point that the customer has no option but to seek a new factor. The most difficult part of changing factoring companies is that the charges can be onerous especially if a new contract has been signed. Sometimes with some careful negotiation these amounts can be reduced however it is best timing any move to coincide with the expiry of any contract. It is not unusual for factoring companies to have a 3 months notice period so this must be taken into consideration as well. In addition if you factor with the bank and they have a overdraft as well as a factoring facility the overdraft maybe withdrawn if they are loosing the factoring. A good independent factoring broker may be able to add some value in any transfer as many of us know many of he funders very well and sometimes we can have some influence over the exiting factoring company.
