- 21 Feb
Do You Want An Improved Factoring Deal?
In many cases, when a company is using invoice finance are not completely satisfied with the service that they are receiving, they stay put in order to avoid any hassle associated with moving. However, there may be significant benefits to moving.
Read our Guide To Moving Factors.
The Benefits From Moving Factoring Companies
This recent case study was a fantastic example of the numerous benefits that you can enjoy if you decide to search the market and move move to an alternative provider. In this particular case, the company in question, a vehicle hire provider, was using a factoring facility from a bank operated factoring company.
Cash Allocation & Credit Control Issues
The key issues that they were experiencing were over cash allocation and credit control. They felt that cash allocation process was not satisfactory, cash was not being allocated to invoices in an expedient manner, when received from their customers. This had the effect of reducing the funds that are available to the company, until such time as the cash has been reconciled and allocated. Some factors have huge sums of customer money sitting unallocated - some pride themselves on having almost none.
Secondly, the client also felt that the credit control service was not up to scratch. I have written previously about the variations in credit control approach between different factoring companies. In some cases, a fully comprehensive service is provided, whereby you are handing over the entire process to the factor, who will undertake a comprehensive job, chasing all of your customers. In other cases, it is not such a comprehensive service. It can be that the credit control is really just offered as a risk control process, chasing the larger accounts, in order to protect the factor's investment - rather than deliver a service to the customer.
If you are not familiar with the variations in service delivery between different factors, you could find that you are receiving something less than a full credit control service. This can mean that you end up having to supplement the credit control yourself, or having to employ credit controllers in order to undertake the task. This can add significant cost and detract from the cost benefits of using a factoring company.
We were able to find this particular customer an alternative facility with a well-known factoring company, backed by substantial and well-known business that is a household brand. However, in addition to being able to solve their cash allocation and credit control problems, there were further benefits to be delivered to this particular customer.
Additional Benefits Of Moving Factors
Firstly, the new factoring company were able to provide an increase in the prepayment percentage, such that it would increase their repayments by over 6%. (as a proportion of the prepayment percent is that they received previously).
Furthermore, we were also able to save them approximately 30% on the cost of the facility that they were previously using. We were able to do this because one of the significant element of the cost was that they regularly triggered re-factoring charges. This was not because their customers were extremely slow paying, but because the majority of their debts were paid just passed the recourse period. This is the period after which a factor removes funding, and often charges a further "refactoring" fee at the same time.
The new factoring company were able to address this by extending the recorse period, this meant that our client saved a significant amount of money on refactoring charges that they no longer had to pay - not to mention the additional benefit of an extended period of funding which will help their cash flow.
This case demonstrates that whilst you are considering moving providers, in order to address a particular issue, you should look more broadly and seek and improved factoring deal overall. This can include a better service, increased prepayments, reduced costs and even reduced levels of security required (where appropriate).