- 04 Mar
Savings On Factoring For A Recruitment Company
Interesting recent case where a potential cost saving has been identified for a medium sized recruitment company, currently using non recourse factoring.
Non Recourse Factoring Cost Reduction Exercise
The prospect was using a non recourse factoring service (which can have its benefits), from a large provider, but they were seeking a cost reduction exercise, and they wanted a better service. They felt that the provider was no longer keen on providing their type of facility, and it is understood that this particular provider is focusing on chasing larger deals.
We have seen a number of cases where a funder has decided to move towards larger clients, rather than focusing on small and medium sized clients, indeed I have commented recently that the industry statistics indicate this trend towards larger sized businesses.
Bank Lending Versus Receivables Financing
In this particular client's case, as we often see, a loan or overdraft will not produce the level of funds that are required. In this case those avenues were only likely to generate up to about 20% of the funding that they were already used to using.
It is a common issue for businesses that are growing, that they need access to more funding than traditional lending products can offer (unless they have significant tangible assets against which to secure that lending). Often the debtor book is the largest, highest value asset within a company, this is why funding against receivables can often release more money than other traditional forms of bank lending.
Moving From Factoring To Confidential Invoice Discounting
Therefore, an option was a product change, to move the prospect from non recourse factoring to a Confidential Invoice Discounting style facility, whereby they could bring their credit control back in house, covering that additional cost, and still making a further cost reduction saving. We have been able to put some options on the table that will deliver up to 32% cost savings on their current factoring arrangement.
With regard to the non recourse element of a facility (bad debt protection), you can opt for Protected Invoice Discounting, which offers bad debt protection, or you might consider taking out your own credit insurance policy.
Many businesses prefer confidential invoice discounting to factoring, as it offers a number of advantages:
- You handle the credit control, so you don't have a factoring company chasing up customers for payment.
- You have full control over how that credit control is undertaken, and so you are in control of your customer relationships.
- Confidentiality means that customers are unaware that you are using a funding service.
- There are no assignment clauses on your invoices, and no correspondence sent to customers by the funder.
- Pricing is likely to differ such that you can save money by using discounting, instead of factoring.