Factoring - is it worth it?

[thevisionary]

Hi all,

We are a small company and at the moment our clients - who are all big companies - owe us about $30,000. We just can't seem to get the money out of them. It is sending us to the wall.

As my wife puts it "we re now in trouble with the bank", so we need to do something NOW.

Is factoring worth considering seeing as our clients are big, well-known companies, or is this practice counter-productive?

I have heard factoring can be horribly expensive if the invoices go unpaid for ages, but I don't see that happening considering our clients.

Thanks

[Chris Bates]

I've never dealt with this aspect as a business, but I've dealt with it as a customer.

AGL had invoiced me for an old account (we moved) that I never received. Months later I got a phone call from a debt collection agency, it was some Indian who was rude and pushy and was asking for my credit card details for payment immediately. Where did this get him? Hung up on. Then I rang AGL and sorted the debt out directly with them.

That's probably all irrelevant to what you're going through, but just an insight from the other side :P

Now for an opinion! Do you have a signed agreement with your clients, does it cover payment?

Maybe look into writing an official letter saying that "As of [a date in a weeks time], your overdue account will be accumulate an interest of X.YZ% in accordance with [your banks] credit rate". Accumulate it daily, and post them an invoice every day. Hell, print it on an A3 card stock and hand deliver it to the boss! If it still goes unanswered, then threaten them with legal action.

Just my opinion, but personally I think I would try avoid selling my bad-debts until I had exhausted every avenue.

[thevisionary]

Chris, Factoring is different to debt collection.

Factoring buys the invoices off you for a small fee. You get the cash up front (say 80% of the invoice total) and the rest is paid to you when they get paid, less the fee.

There are no hard-ball tactics with Factoring, they just have the wait for payment as opposed to you.

[Burgo]

I know of a couple of people who have made lots of money from Factoring.

That is quite a substantial amount and you need money NOW it is worth looking into, after every other avenue has been exhausted.

You really need to find out how much it is going to cost you to Factor, then you can make a more informed decission.

At this point it may be the only alternative.

[thevisionary]

Today we have learned that our turnover is not enough to interest a Factoring company to help us out. Obviously the larger the turnover, the more they make out of their fees.

[Accounts Studio]

Hi
Did you try a few different factoring companies? Try BCFG - one of my clients uses them and she factors a lot of small invoices at a time. They may all have different rules. How big are your clients? I know for example a lot of large retailers like Big W, Target, Myer, DJs etc pay on really long payment terms but they normally specify these at time of purchase / sale. I do know of some however who you can negotiate shorter terms with if you offer them an extra discount - have they said why they are not paying? Is it just a matter of them being large companies and it taking ages to go through the process and get to the right people? Try calling them and saying - hey, pay within the next 7 days and we will give you an extra x% discount - might work out the same as if you had factored.
Good luck - let us know how you go

[FS Concierge]

Hi Visionary,
I have been thinking about you and your problems, and wonder whether as freelance TV crew you qualify to join the Media Entertainment and Arts Alliance (http://www.alliance.org.au/).

If so, it could be worth joining and then having a chat with the Lead Organiser of the union as she has been instrumental in accessing outstanding fees for several freelance journos that I know. Send me a PM offline if you would like her details.

All the best,
Jayne

[timlea50]

Hi Visionary,

Factoring is ideally suited to you and your business IF you are expanding. The costs can be quite high - but can easily pay itself back if you are expanding. Because factoring is finance against invoices the more you sell, the more invoices you raise, the more your cashflow grows - as the finance provided is against the invoices themselves.

Source of payback :

1) You can negotiate settlement discounts with your suppliers if you have access to more cash.
2) If you are struggling to buy additional stock - having the cash to fund your growth means you will generate additional gross profit you did not have before.
3) If you have cash upfront with every invoice you raise - as soon as you raise an invoice you get cash upfront - rather than waiting 45 days - so you can buy more stock quickly .....

One thing to think about is that on day 1 of the facility you can generate up to 90% against the value of your invoices (it usually works out to be around 70% - after over 90 day debts are taken into account and other issues). So if you have $30k outstanding it means you could probably access about $21k right now (I would need to assess your individual profile to ascertain exact amount available).

In regards your requirement given you have $30k o/s there are several companies that can help - the options are limited - but some set their stall out to help smaller companies working on the basis that they can grow with you. (Personally I am a published author on the subject of factoring and invoice discounting - and have a boutique advisory house & brokerage in this field so happy to explore options with you (at no cost to you )).

However one point - if your business is NOT expanding factoring will NOT be the most cost effective option for you - it will just add to your overheads as the payback will not be there.....

Good luck to all

Tim Lea
Partner
Cash Stream Financial
www.cashstream.com.au