Possible disadvantages of factoring
Introduction
The first potential disadvantage is the cost. Before you make your decision on whether to go down the invoice financing route, you do need to do your sums to ensure that it will be truly cost effective. You also need to consider the size of the annual minimum fee, the length of the commitment period, and even the small print on the agreement. Some factoring companies set minimum periods of twelve months plus a notice period of three to six months. Care should be taken when comparing contract lengths and notice periods as these can vary dramatically, and will have an impact on when you can exit the facility.
Choosing a suitable factor
Some small businesses worry that using a factor might lead to a loss of contact with their customers. In this case, you need to choose a factor with a flexible approach to customer handling, which will allow you to set the terms on which they deal with each individual customer.
Other concerns
Another aspect of using invoice financing which worries some people is the possibility that their main bank might restrict other borrowing. This is rarely a problem these days, as invoice financing tends to provide more flexible funding than overdraft and is becoming such a normal way of doing business.
If the problem does arise, your bank will be happier if you use their subsidiary factor rather than an independent, but this does not mean that you should allow yourself to be pressurised into this if you can get a better deal elsewhere.
IVA's
The IVA Guide
Money Advice Direct has put together an IVA Guide based on the enquiries and questions that we receive at our helpline offices.
In the guide we cover such subjects as IVA Approval, early settlment of your IVA, missed IVA payments, IVA failure, additional debt claims and much more.
[click here for IVA Guide]
What is an IVA?
The IVA is an extremely powerful tool enabling you to clear your debt and return to a clean financial bill of health. Visit Money Advice Direct's Guide to Individual Voluntary Arrangements (IVAs).
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DANGER
Due to the tremendous demand for debt consolidation services the United Kingdom is now overloaded with debt management companies that contain misleading information. [more...]