Has anyone successfully sued a factoring company for inadequate performance

We had an enquiry last November from a company who had a successful relationship with an independent factoring company but had been tempted away to one of the bank factors with talk of cheaper rates.

Within 3 months the unapproved debts had risen from £700 to over £40,000 and it became apparent that despite paying for a full credit control service the factoring company were actually not doing much at all so the cost of the facility had risen whilst the lack of cash flow due to the increase in unapproved debts was slowly strangling the life out of the company.

I introduced the company to one of the independents who are known for their excellent service levels and thought that would be the end of his nightmare but unfortunately that was not to be the case. The new factor was never able to buy out the investment of the bank factor as the lack of credit control had left the ledger in an unholy mess.

As the factoring facility was plainly not working the company stopped sending invoices to the factor and and has been struggling to self fund for the last few months. Speaking to them today it seems that the outstanding factored debts now total over £160,000 all of which is overdue and unapproved.

The company now wish to take legal proceedings against the factor for non performance on the basis that they paid them for a full sales ledger service including credit control that the factor has failed to provide.

Although a factoring agreement will be worded in such a way that the factor is not responsible for anything I’m sure that would not hold up in a court of law if it could be proven that they were negligent but has anyone successfully sued a factoring company for inadequate performance?

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4 thoughts on “Has anyone successfully sued a factoring company for inadequate performance”

  1. I don’t think it would be worth suing the factor as you may be better off simply cutting your loss and moving on with life.
    When you signed the docs you would know that it is the factor’s complete discretion as to whether or not they advance.
    By the time you get up in court you will be years down the track and you will most likely have gone under by then anyway so there would not be any point. You are always better off using your time to set up a new business and start again rather than tie yourself up with negative emotion which will mean you cannot move forward in life.
    If you were to be successful against the factor this would be bad for the industry and good businesses who have good credit control would suffer as some factors may choose to pull out and therefore small businesses would have less funding available to them than they already have today.
    So a no win situation really. We have had many litigation matters over the years and really it is always better to accept responsibility and move on rather than try to place blame. You will lead a much happier life and quite possibly live longer.
    My view is of course biased as we are an invoice finance provider. So I can only give you my side of the argument.
    Good luck!

  2. I hear so many complaints that there needs to be somewhere that unhappy clients can go for arbitration. It is obvious that the UK factoring industry is crying out for regulation but the major players in the form of the bank owned factoring companies and their trade association the ABFA have been arguing against regulation as unnecessary and suggesting self regulation instead

  3. Taking legal action against a factor, particularly a bank owned factor, would be a big and probably bad decision and Daniel makes many valid points. However Ian’s story is not unique & perhaps some kind of independent arbitration may be useful. This ought to come from ABFA & the client should at least speak to them. The cynic in me tells me this would be a waste of time & money.

  4. Yes I have (for 30 m) and if you have been wronged standup to them.
    For a chat send me an email and I will discuss in private.

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