![]() ![]() ![]() Is this to be a recourse or non-recourse agreement? Is it for the whole turnover of the business or are we going to offer a selective factoring service and allow the client to just factor certain debtors or even select individual invoices? Will this be a disclosed facility where we notify all the debtors, or will it be confidential, just between us and the client? Are we going to manage the sales ledger on behalf of the client, or will the client continue to manage the collections process? But what service are we offering?įactoring has many forms. Unfortunately, accepting the wrong clients can prove very costly, but turning away potentially good clients is also unhelpful to a factor’s success. The level of due diligence to apply is about making the right choices. Then, there are the more “old school” lenders, who insist upon “kicking the tyres”, visiting the clients’ premises and really understanding the business they may decide to finance. Many factors are moving towards automated digital processes that make decisions on what businesses to accept and which ones to refuse. There is a philosophical position to take here. Who are the people behind the business? Is the business viable? What is the track record? Lending money is about risk taking, but if an opportunity looks fishy, smells fishy, it probably is fishy, so best to put it back in the sea for someone else to catch! A factor really needs to understand what they are getting into. There must be robust processes around vetting potential clients. Like with many things in life, a factor needs to be able to say “no”. All these processes require the systems to do as much of the hard work as possible, leaving the business people to do all the complicated tasks.įirst things first, picking the right businesses to become factoring clients is a key to success. ![]() New clients (hopefully), new debtors, new invoices, advances/pre-payments, collections from debtors. You need to check the agreement provides you with a sufficient upfront payment for each invoice you factor.What happens day to day in a Factoring operation? However, the whole purpose of invoice finance is to release your working capital. The remainder will be paid out (minus fees) once the customer has paid up. It will set out what percentage of each invoice’s value your business can expect to get upon sale. You may therefore need to consent to the factoring company’s vetting of your customers in order to reach an agreement.Īdvance Amount: This is arguably the most important element of a factoring agreement. In this case you may choose which invoices to sell.Ĭreditworthiness: Finance companies will generally look at the relative creditworthiness of both your business and its customers when deciding whether to approve your application for invoice factoring, ![]() Alternatively, you may choose selective factoring. It will also confirm whether your agreement involves all your invoices. Selling Accounts Receivable: Every factoring agreement will cover which invoices you will be selling. So, whilst your factoring agreement may contain bespoke terms, it’s worth looking out for the common provisions listed below. Many finance companies use a fairly simple factoring agreement template that covers off similar terms. ![]()
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