Cash Simply is in the unique position of being able to collate the comments of hundreds of temp agencies who have used factoring over the last nine years. In contrast to factoring Cash Simply adds a lot more value through its payroll service and its pricing is simple – we make one charge i.e. a percentage of net sales turnover.

Factoring – General Considerations

Check the credentials of the factor. After all where would your business be if the factor ceased to trade? Check for trading history and backing.

What is the exact nature of your contract/agreement? One agreement we know of makes the client an ‘Agent’ of the factor which brings with it enormous complications regarding whose terms and conditions should be used and directors’ liabilities.

There are two basic charges with factoring: finance/discount or interest charge and an administration fee for the work involved in running the client’s ledger.

Check the Administration fee – is it charged on the total value of sales or sales net of VAT?

How much money will actually be made available to you? Ask the factor to estimate this based on your usual spread of debtors, number of disputes, credit notes, debts past 90 days. Is it enough to finance your business?

What debt turn is the factor achieving? It has been said that it is in the factor’s favour to have a longer debt turn as the client pays interest for longer.

Factoring – Possible Additional Charges

Check in advance whether any of the following charges will be made in addition to the standard finance charge and administration fee mentioned above.

Credit limit checks – how many are included in the service? How much do they cost each thereafter?

Old debts – if debts go beyond a certain age – usually 90 days past due date – will the factor make a ‘re-factoring’ charge to continue chasing the debts? We’ve heard this charge can be 1% plus of invoice value.

Spread Restriction – if an agency has a concentration of sales of 25% plus with one customer the factor may not finance any sales over that percentage. Find out the ‘spread restriction’.

CHAPS – how much will the factor charge for CHAPS payments?

Renewal Fees – may be charged on the anniversary of a factoring agreement.

Credit Insurance – if the administration fee includes protection against bad debt how much of the debt is covered? 75%? 100%? And when exactly will the factor pay out?

Credit Insurance – if debtors go bust with debts over 90 days old or disputed are you still covered?

Minimum Fee – some factors make a minimum charge per month or per annum regardless of the client’s turnover.

Service/Administration Fee – can the factor demand its fee even if it has made no payment at all to the agency?

Arrangement or Commitment Fees – sometimes charged in advance – similar to bank overdraft/loan arrangement fees.

Termination Fees – if the agreed termination period is not adhered to by the client the client may have to pay the factor the equivalent of any lost income.

Value Dating – when a credit is made to the client’s account with the factor how long does it take for the account to be credited? Incoming payments may show on the account but when does the factor adjust interest charges accordingly. We have heard of one client who checked (a time-consuming process) the interest charged by the factor and found a delay of 5 days on incoming payments. The client was not surprised to find that when payment came out of its account that account was debited immediately – there was no matching delay.