What sort of questions should I be asking of factoring brokers and factoring companies?
The above was a question asked on the ukbusiness forums recently and I have reproduced the answer given as I think that it may be of interest.
“You’ve actually got the wrong end of the stick as most factoring companies will pay commissions at about the same rate so there is very little incentive for the broker to pick one over the other on commission rates alone.”
The real problem with the broking market is that far too many are not as independent as they would have you believe. There are quite a few finance brokers that will handle factoring enquiries but far fewer dedicated brokers who specialise in that area and of the top half dozen (in terms of activity) one is actually owned by a factoring company (although there is no mention of that on their website) whilst two more earn the bulk of their income by doing audit work for factors and only introduce business to selected factors on a reciprocal basis whilst another pays retainers to some unscrupulous factoring company salesmen so that they will put his name down on enquiries that have come in directly so that he receives the commission and in return he will introduce all of his enquiries to them.
Amusingly you were right to be sceptical but for all of the wrong reasons and that is why three of us set up The Independent Factoring Brokers Association which if you have a look at the website will list some of the areas of concern.
No respectable factoring broker would answer your question on the basis of what little information given as the particular industry sector that you intend to operate in, forecast turnover, major customers, payroll or just factoring and even the areas that you operate from would all influence the factoring company that I would recommend.
If you are going to a broker I would suggest that you tell him about your business then tell him that you have spoken to a couple of factoring companies but weren’t impressed and would like to speak to a third. All brokers (including myself) are likely to ask who it was you spoke to but don’t tell them. Even the honest brokers would like to know who it was that didn’t impress you as that adds to their knowledge of the industry but the less than scrupulous broker will try his hardest to worm the names out of you to make sure that it isn’t the company that they were about to recommend as that would then be them scuppered.
The cagey broker will also want to know who you bank with as they will then try and introduce you to your own bank on the basis that you may have been about to do that anyway but this way they get the commission. I don’t recommend a high street bank factor for any new start company as whilst they may be marginally cheaper their rules and regulations are too rigid for many and the poor credit control could well end up costing you more than a facility from a well run independent.