Factoring companies short sighted attitudes

In the current economic climate factoring companies are finding new clients harder to come by so they are supposedly making a bigger effort than ever before to hang on to existing clients although too many take a short sighted view to earning profits which works against long term profitability.

I was chatting to a factoring company salesman last week who happened to mention that they were in discussions with a client of a competitor who was being “ripped off” (his words, not mine) by his existing factoring company.

The company started factoring a couple of years ago as a new start and paid an appropriate factoring commission for the small turnover and risk. In the intervening years turnover had grown to £2.5m and they were still paying the same rate .

factoring company commission rateUnless there were serious problems with the facility I think that everyone would agree that a commission rate for a new start turning over £150,000 is completely inappropriate for a company that the factor has two years ledger experience of and has grown fifteen fold so in my mind it serves them right that they are about to lose this cash cow and I can readily understand the factoring company salesman’s righteous indignation

Two days later I had a phone call from another company who had a remarkably similar story to tell as they started factoring four or five years ago when turning over £250,000 and were given an appropriate rate for the size plus a facility limit of £200,000 which was quite generous at the time.

The reason for the call to myself was that this company had also grown significantly to it’s current level of £2.5m turnover but not only was their factoring company unwilling to offer much of a rate reduction they had also refused to increase the facility limit.

The client was effectively operating on an Initial Payment of 25% and was so hamstrung that they had resorted to borrowing money to fund the gap that factoring was supposed to fill.

What made this interesting was that the factoring company involved was the very same one that was trying to take the moral high ground on the first case.

factoring company short sightedSpeaking as someone with a predominantly operation background I find this sort of greed to be very short sighted as whilst both factoring companies have earned a high income in the last twelve months if they had been less greedy they would have continued to earn a smaller income for potentially many more years.

I speak to a lot of factoring company salesmen and they all agree that life is tough at the moment yet there are salesmen for two factoring companies whose first few clients will not help to grow their employer but will simply replace clients that their company’s shortsightedness has lost them.

If any factoring company thinks that will get away with excessive rates for long they are mistaken as there are a number of brokers out there who spend their day contacting factoring company clients to find any excuse to move them on and thus earn themselves a commission.

That is not the business model of Factoring Solutions as we don’t cold call anyone but if you feel that your company is being charged excessive fees please feel free to contact Ian Johnston on 01827 707680 for a friendly, informal chat with no obligation whatsoever and of course, completely free of charge at all times

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