What Pitfalls are there with Factoring?
• Service charge – this is levied on turnover including Vat. Notice how many of the factoring companies web sites and literature do not make this clear. • Minimum charges – 1% of a £200/£300,000 turnover does not sound too bad but beware, most factoring companies have a minimum charge of at least £4,800. Fortunately we know the factors who specialise in the SME market and their charges only start at £150 per month. • Advance Levels – do not believe what the glossy brochures tell you. Advance levels up to 90% are the exception, not the rule. Factoring companies conduct regular audits during which they will look at the levels of contras’, credit notes/returns, invoices over 90 days old and customers exceeding their credit limits. Once these are taken into account the true level of advance is more typically 70/75%. You need to be realistic about this. However, some factors do not apply credit limits at all, potentially releasing 10-20% higher funding than other factors and we can point yo
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