Factoring case studies – Low Credit Limits in Factoring
We were approached by a software company that had not been trading long and having made the initial sales to one of their newly appointed distributors in Europe had just signed up with one of the major factoring companies.
This bank owned factor had not bothered doing their homework properly before offering the company a factoring facility but having signed the company up and received the first invoices to fund, they belatedly decided that it didn’t fit their strict business model and refused to fund the invoices.
Luckily we managed to place the company’s business elsewhere but we are hearing more and more stories about this particular factoring company who’s sales staff make promises that their operations department won’t keep.
A week later we were approached by another company that had an even more worrying story to relate. This was a recruitment company hiring out temporary staff and had been trading for a number of years achieving a turnover approaching £2m per annum by utilising the services of one of the big bank owned factoring companies.
Factoring companies setting low credit limits
This business was constantly struggling with their cash flow despite being profitable as although their customers were “blue chip” they only had a small customer base which included one customer who comprised half of their turnover.
The factoring company placed funding restrictions on this customer despite it being one of the biggest supermarket chains in the country. This particular company had total outstanding debts of £250,000 and despite only dealing with a small number of top quality customers, the factoring company placed a blanket limit of £2,000 on new customers irrespective of who they were until they had two months trading experience.
The company received an order to supply temporary staff to Royal Mail but struggled to finance the arrangement as the factoring company wouldn’t increase their funding limit above £2,000 for the first two months. The directors of the company informed us that due to the funding restrictions placed on them by their factoring company they were close to being forced to cease trading despite being profitable but fortunately having contacted ourselves, it was a relatively simple matter for us to quickly replace their factoring facility with another from a more commercially minded independent
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