Reply to: Invoice Factoring Firms

[Andy Hallett]

The devil is in the details here. It could be argued you should take the credit risk being opted in and per the contract between you and client already but it seems not to happen alot leaving people in the lurch. PCG also helps fill this gap a little as well.

You would have to work the details out, prove they are legitimate, backed up by case law and legal speil and then word it very very carefully so people can actually understand what it is and why you do it. I mention that last point as UC finance seem to be coming out with products that provide various services but hide behind misleading statements as 'Enchance IR35 Status' and 'Put a stop to HMRC fines and penalties' which don't explain what the product really does properly.

You would also have to convince us the 'nice IR35 contract' matches working practices which it probably won't as you are providing it as an off the shelf product for low margin rather than engaging the contractors client to make sure they match.

Just my ill thought out 2 penneth....

Make up your mind on the opt out!

As you state, it's the contract details itself that determine IR35, as contractor finds their own gig that's beyond our control.

[Andy Hallett]

It's an interesting question.

I had a direct contract where a preferred agency was inserted by the client to deal with the admin. I got the rate I negotiated and the client paid the agency about 4% on top of that.

I invoiced weekly, 30 day payment terms to me. I don't know what their payment terms with the client were - I imagine they were 4 to 6 weeks and the client could be a bit clunky with their payments from what other suppliers said. Agency had maybe 20 contractors on site and the client was quite open about the business arrangement with the agency.

Would that be an acceptable margin? That's going to vary, most likely a business decision based on the payment terms client -> agency and agency -> contractor as well as the perceived credit risk of the client and reputation of the contractor. The other point to consider is that the client may be a blue chip one that you would like to get on the PSL for and build a relationship with.

As a business man, I'd consider up to 4% for weekly invoicing, 7 days payment terms if the client was wanting 6 week terms. Much more margin than that and I'd stick with a direct arrangement.

Yes and I would guess 10-15% to cover the risk and factoring costs. It would probably be a hard sell to many contractors though as many don't seem to think things through very thoroughly.

We currently finance out of our cash reserves so no factoring costs.

[RasputinDude]

It is something that I would be interested in. Many factoring firms don't want to talk to you unless you are importing millions of units from China.

However, my PlanB has cost me dear this year as I have had to pay out VAT etc on invoices sent out to customers but haven't yet received the money. I know that *eventually* I will get the money but these companies typically take around six to nine months to pay anything; and while I have a good relationship with the people who sign off the purchase orders, the payments people are very hard to get through to.

I would think around 5% to 10% is a viable proportion.

[northernladuk]

Didn't want to start a thread on this and Mods plesae delete if not appropriate.

If I was to offer a service where we ran a simple pay and bill service for contractors with direct clients, taking the credit risk (yes you can opt in), nice IR35 aware contract etc.

a) Would there be a demand?
b) What would it be worth as a percentage?

The devil is in the details here. It could be argued you should take the credit risk being opted in and per the contract between you and client already but it seems not to happen alot leaving people in the lurch. PCG also helps fill this gap a little as well.

You would have to work the details out, prove they are legitimate, backed up by case law and legal speil and then word it very very carefully so people can actually understand what it is and why you do it. I mention that last point as UC finance seem to be coming out with products that provide various services but hide behind misleading statements as 'Enchance IR35 Status' and 'Put a stop to HMRC fines and penalties' which don't explain what the product really does properly.

You would also have to convince us the 'nice IR35 contract' matches working practices which it probably won't as you are providing it as an off the shelf product for low margin rather than engaging the contractors client to make sure they match.

Just my ill thought out 2 penneth....

[Wanderer]

If I was to offer a service where we ran a simple pay and bill service for contractors with direct clients, taking the credit risk (yes you can opt in), nice IR35 aware contract etc.

a) Would there be a demand?
b) What would it be worth as a percentage?

It's an interesting question.

I had a direct contract where a preferred agency was inserted by the client to deal with the admin. I got the rate I negotiated and the client paid the agency about 4% on top of that.

I invoiced weekly, 30 day payment terms to me. I don't know what their payment terms with the client were - I imagine they were 4 to 6 weeks and the client could be a bit clunky with their payments from what other suppliers said. Agency had maybe 20 contractors on site and the client was quite open about the business arrangement with the agency.

Would that be an acceptable margin? That's going to vary, most likely a business decision based on the payment terms client -> agency and agency -> contractor as well as the perceived credit risk of the client and reputation of the contractor. The other point to consider is that the client may be a blue chip one that you would like to get on the PSL for and build a relationship with.

As a business man, I'd consider up to 4% for weekly invoicing, 7 days payment terms if the client was wanting 6 week terms. Much more margin than that and I'd stick with a direct arrangement.

[eek]

Didn't want to start a thread on this and Mods plesae delete if not appropriate.

If I was to offer a service where we ran a simple pay and bill service for contractors with direct clients, taking the credit risk (yes you can opt in), nice IR35 aware contract etc.

a) Would there be a demand?
b) What would it be worth as a percentage?

Yes and I would guess 10-15% to cover the risk and factoring costs. It would probably be a hard sell to many contractors though as many don't seem to think things through very thoroughly.

[Andy Hallett]

Didn't want to start a thread on this and Mods plesae delete if not appropriate.

If I was to offer a service where we ran a simple pay and bill service for contractors with direct clients, taking the credit risk (yes you can opt in), nice IR35 aware contract etc.

a) Would there be a demand?
b) What would it be worth as a percentage?

[Sean CFA]

Sean CFA

Hi JoJoGabor, i am probably too late to provide much help on your request, as i only came across your post today, but i thought i would drop you a reply as i am an Invoice Finance Broker so i have some experience in this matter and my comments may be of use to you if you are still struggling.

Firstly i would agree with the earlier posters and say I would be very cautious about continuing to deal with a customer that is not paying promptly or at all in your agents case. However if you know them well then obviously i bow to your greater knowledge. What i would say with a high degree of confidence is that any Factoring company would definitely carry out a credit check on the customer first and if they are not well rated then the deal will stop right there.

However if the customer does have a reasonable rating a factor will still be concerned at the poor payment performance to date and would be umcomfortable at funding any of your outstanding invoices (they dont tend to fund invoices older than 3 months old anyway).

My experience of customers who dont pay or delay payment is that they fall into 2 categories:

1. They either dont want to pay because there is a query on the invoice(s) or 2. They cant pay due to cash flow issues.

Either way will prove difficult for a factoring company to fund your invoices. However if you are still keen to try i would suggest you let them know the customer details up front so they can review them before wasting any further time on it. Good Luck.

Regards

Sean

[Safe Collections]

Can anyone recommend an Invoice Factoring Company. Having ongoing payment issues with current client. Was going direct but wasnt willing to tolerate the risk of multiple outstanding payments, so went via an Agent who hasnt been paid by client in 6 months so wont do business with them anymore. Now looking at invoice factoring so I can go back direct but with less risk.

Looking for a low charge, I found one on Invoice Factoring Forum | Invoice Discounting | Invoice Finance who charge 3.3% based on one invoice per month,

On that basis we would not recommend offering this company any credit at all. But if you are determined to find a work around have you considered asking them to pay in advance?

Reduces your risk to zero and you could potentially offer a reduced rate to reflect the reduced risk.

Just a thought

[JoannaUCF]

Hi JoJoGabor

I'd agree with most of what other people have written here.

If the agent hasn't been paid for six months, and if you continue to experience the same payment issue and eventually have to write the invoices off, then it doesn't matter how much the contract, or future work, is worth...as tempting as it may sound initially.

If you did approach a factoring company then one of the first things they would do, we certainly do anyway, is a credit check on the client - if the result was that they werent prepared to fund it then you've had some free info that you maybe wouldnt have had otherwise, and possibly a lucky escape.

Unfortunately, in my experience, I've seen many businesses take on what appeared to be a golden opportunity, only to be let down when it came to being paid for their work. Tread with caution!

Rgds
Joanna

[JoJoGabor]

Aaah I see, I didnt realise that. Thanks for the clarification

[eek]

I think you need to do a bit more research into how factoring actually works. You're on the hook for all of the money unless you take out very expensive bad debt protection, and normally they won't offer this if one customer makes up a large proportion of your total debts.

+1 factoring doesn't remove the risk of not getting the money its just a loan of a percentage of the full invoice until its finally paid.

If the firm goes belly up without paying you need to pay the money back to the factoring company.

[Vallah]

I am fully aware of the risks I am facing and have an insight into the company's finances. But this gig is worth a lot of money with a lot of potential future work. And by using a facotring company the risk is mostly removed (I am guessing I will get 80% of the invoice value immediately so the risk is reduced to 20% of the invoice value). So back to my original question, does anyone have any experience of using these firms or any recommendations?

I think you need to do a bit more research into how factoring actually works. You're on the hook for all of the money unless you take out very expensive bad debt protection, and normally they won't offer this if one customer makes up a large proportion of your total debts.

[JoJoGabor]

I am fully aware of the risks I am facing and have an insight into the company's finances. But this gig is worth a lot of money with a lot of potential future work. And by using a facotring company the risk is mostly removed (I am guessing I will get 80% of the invoice value immediately so the risk is reduced to 20% of the invoice value). So back to my original question, does anyone have any experience of using these firms or any recommendations?

[BolshieBastard]

Just about what everyone on the thread has said! If this client has known regular 'difficulties' paying on time, I wouldnt touch them with a barge pole.

I know Bibby's do factoring but tbh, I'd suggest they have a good ideal who the tulip payers are and would increase their costs to you, the higher the risk.