- 02 May
Help If A Factoring Funding Limit Is Removed
If you have had a factoring funding limit removed or reduced, it can dramatically affect your ability to borrow money against a customer's invoices. However, you should be reassured that not all factoring companies will take the same view on a particular debtor.
How Credit Limits Affect Funding
A funding limit (or credit limit) is set by the factoring company against each debtor. With a recourse arrangement, although there is no bad debt protection, debtor limits are still used to control the maximum amount of invoicing that can be funded in respect of each customer. Removing the credit limit can mean that no funding is made against that customer. There are a few exceptions, for example, if the factor funds against "approvables" this means invoices that have not been disapproved i.e. funding limits do not come into play.
Case Study - Helping A Customer Whose Debtor Funding Limit Was Removed
We were approached recently by a prospect who already used factoring via an independent factoring company. They were a recruitment company, which are normally highly suitable for factoring, in order to release working capital. All had been fine until there was an issue with their prime debtor, a deterioration in their credit rating, and the factor decided to remove the funding limit against that debtor. This meant that they could not draw any funding against their main customer. This created a huge cash flow problem for the company.
We searched the UK factoring market for them an there were none of the factors were prepared to help. Most took a similar view about this particular debtor. However, we found one of our funding partners that was prepared to fund up to a capped funding limit.
There was then a futher deterioration in the debtors credit position and this means that they level of funding would fall below the credit limit that had been agreed. In order to continue to provide an adequate level of funding, our factoring partner was prepared to take a charge over a property that was owned by one of the directors of the company. This meant that they were able to continue to provide the client with the level of funding that they needed, giving them the opportunity to seek new customers (we can also help with this) to expand their customer base. Our partner also agreed to release the charge, should the debtors credit rating improve to a satisfactory position once again.
"Can Do" Approach
This is a great case study example of the "can do" approach that we try to take, and value in our funding partners. if someone has told you that they can't help, please give us a try to see if we can.
Call Sean on: 03330 113622 or request a call back about factoring.