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Factoring – 5 Mistakes You Don’t Want to Make…

Factoring and Invoice Discounting can provide easily arranged, flexible financing solutions for companies. However, as with any financial decision it is important to consider all the facts carefully to avoid making, what could be, costly mistakes. As a reminder, we have listed 5 mistakes that are, all too often, made…

  1. Not Dealing with Issues Promptly

    Don’t allow cashflow difficulties to take you by surprise. 

    If necessary, factoring agreements can be arranged at very short notice.  But, if you are able to negotiate the agreement before cash flow difficulties arise you will be able to do a much better deal.  Costs and funds made available are both significantly affected by the risk the factoring company considers it is taking.

    So, anticipate, forecast and plan ahead…

  2. Over-optimistic Financial Projections

    It is important to be realistic when preparing forecasts that are to be the basis on which a factoring agreement is arranged.
    You may think that being over-optimistic might result in lower costs being offered. However, the minimum monthly costs will in all probability negate any perceived benefit. Accurate forecasting of funds required means it is less likely that you will have to seek extra funds part way through the agreement term.

    It is, of course, worthwhile preparing a few budgets (perhaps best-case, worst case and “realistic”) so you understand the situation – both opportunities and risks – but when determining funding requirement be realistic, not over-optimistic.

  3. Not Choosing the Right Factoring Company

    All Factoring Companies are not the same! – They have different requirements, facilities and attitudes to business. Whilst cost is a vital consideration, it is important to ensure that the factoring company’s style matches yours.

    Getting advice at an early stage as to how factoring companies differ in their approach is the solution…

  4. Not Making the Correct Use of the Funds Raised

    The funds raised essentially are an early payment of your company’s working capital. There can be a temptation to use the initial prepayment to fund a purchase of equipment. This can leave the business with insufficient working capital and thus cause difficulties in the future.

    There are other forms of finance that can be arranged that are better suited to capital expenditure and will have less of an affect on the company’s working capital.

  5. “Fresh Air Invoicing”

    "Fresh air invoicing" is preparing an invoice that does not represent a genuine transaction. It is often initially seen only as a short-term measure to deal with a problem. However, it is a extremely serious breach of the factoring agreement which can have long-lasting consequences for the company and directors personally. The simple point is – Don’t do it! The need to forecast so as to anticipate cashflow problems is clear. But if problems do arise - take advice, talk with your factoring company, if you have chosen the right one, they will likely understand your position and perhaps be willing to make additional funds available for a short time.

Follow this link to see how one business ultimately benefitted from making the right choice...

Why not call us for a no-charge, no-obligation chat about the options that are available and how these can help your business progress?


Ian Jones (Head of Business Development) on 0161 438 8555 or 07801 858737, or

Stephen Devonport (Business Development Manager) on 0161 438 8555


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