The obvious pros are that you get [most of] your money quicker, and someone else has to do the debt collection.
The obvious cons are that you get slightly less money due to their charges, more to reconcile for that reduced income, and - if memory serves - the contracts usually tie you in such that you have to provide six months notice to end it.
However, the truth is top-of-the-head pros and cons aren't enough, because whether it's a good idea or not depends on the company's individual circumstances: most notably debt collection and cash flow.
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Vince M Hudd - Soft Rock Software
(I only came here looking for fellow apiarists...)
With some you are basically borrowing the money against the factors ability to get it from the clients.
With others the factor is buying the debt from you.
You need to be careful to ensure that the type of factor that you have signed up for is the sort you are actually getting or you could end up with a nasty surprise when the factoring company comes to you for the money (plus further interest) that they cannot get from your client.
The phrase to look for is factoring with no recourse to ensure tha the debt has actually been sold rather than loaned against.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Factoring is good if you need access to cash from your sales and not having to wait 30 days or what ever term you have with your clients, but I actually think it's better to get a loan or overdraft from your bank as the cost of that would be less than factoring.
had a few clients use it but not known any that have been able to get out of it again - the costs soon way up. Better to offer a discount for early payment and see if that works.
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Donna Curling - Complete Book-Keeping Ltd (CBKLtd) - 07939 101900
Donna makes a good point and I have seen cases with businesses being charged five figures on a relatively modest turnover.
.......the business then wants to get out of the factoring but can't as most banks will not grant an overdraft while you have a factoring agreement in place........a very expensive catch 22.
As Shaun says most factoring has recourse back to you should the debtor not pay so the only benefit is in collection of monies quicker, which if you deal with blue chip but slow payers then may be a price worth paying.
Be wary and especially look at the terms and conditions (they will be printed very small and there will be masses)
Note I speak as an ex business bank manager who was ***told*** to flog factoring agreements, not the nice cuddly accountant I have become......
