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When looking for factoring advice I am always amazed at who people approach. I accept that my views may be tainted somewhat as I am a factoring broker but it is what I specialise in and I know and am 100% impartial.

Let’s have a look at who business owners will approach to obtain a recommendation for factoring:

Bank managers – your bank manager will only ever recommend their own bank’s factoring company. They are heavily targeted to sell this product so you will receive a single recommendation not taking into account what your requirement is or what the market can offer. In contrast a factoring broker can look at your requirement and recommend the lenders best placed to meet your needs.

Accountants – unfortunately a lot of accountants take commissions from invoice finance providers (as do invoice finance brokers) The problem is that accountants do not specialise in setting up invoice factoring facilities and often do not look at it as in depth as they should. They will also have a few localised relationships rather than using the whole market.

Brokers owned by factoring companies – some brokers are actually owned by factoring companies. As such guess who they are most likely to recommend? If you are using a broker at least ensure they are independent and impartial.

Brokers owned by insolvency practitioners – this may seem like a strange relationship but insolvency practitioners are keen to be appointed by factoring companies. If they can offer factoring companies new business they are likely to receive more appointments. As such you could find yourself placed with a factoring company they owe a favour to rather than the one best placed to meet your needs.

In my opinion you should be taking factoring advice from a specialist and someone who is 100% impartial and independent.

There are a lot of good brokers in the market who are specialists and totally impartial.

At Smart Factoring Quotes we are totally independent and impartial. We are also specialists as invoice finance is all we do.

Trade finance facilities such as a letter of credit combined with a factoring facility can provide an ideal solution for importers. This combination can allow importers who take confirmed orders from reputable customers to pay their supplier. By funding the full trade cycle it allows them to raise finance from order right through to when their customer pays.

How does this work?

  • The importer receives a confirmed order
  • They place that order with their supplier
  • A letter of credit is raised in favour of the supplier
  • Good are shipped and when received the supplier receives payment from the LC
  • Goods are delivered and an invoice is raised
  • The factoring facility repays the LC
  • When the customer pays the factoring facility is repaid


  • A confirmed order
  • from a credit worthy customer
  • usually a 20% profit margin is required


Some banks require tangible security in the form of cash cover or a charge on property. However, within the market there are lenders who will happily raise an LC on the back of a confirm order.

In a recent study by the Institute of Directors (IoD) is was found that 1 in 4 UK businesses have tried to access finance via their banks. Unfortunately almost 60% of those businesses had their applications rejected. What was more worrying was that 83% of those businesses has received no information regarding the available alternatives.

The banks should be offering the government’s Enterprise Finance Guarantee Scheme (EFG) whereby the government guarantee 75% of the facility thus limiting the banks exposure to 25%. There is an argument as to why the banks would lend 25% against a project or to a business that they didn’t believe in but it does at least limit their exposure. They should at least be promoting this facility but it seems to face the same issued that the SFLGS did in terms of lack of acceptance by the banks.

On that basis it is interesting to see invoice finance providers bolstering their offerings with the EFG scheme. I am not sure how active they are in lending but I have seen a fair amount of PR relating to invoice finance providers offering the EFG which is more than can be said of the banks.

But realistically what are the finance options outside the banks?

Well beyond the banks asset finance arms who offer finance against real business assets. They tend to avoid softer assets such as IT and office furniture but will happily consider plant and machinery along with vehicles. Just because you bank has said no to asset finance other options do exist.

The same can be said with invoice finance. The bank invoice finance arms are the most risk averse. As such, just because you have been told ‘no’ does not mean there is not a suitable facility out there for you. The independent invoice finance market can deal with most scenarios.

The commercial mortgage market is severely subdued and lacks alternatives outside the banks. Roughly 2 years ago a dozen or so lenders withdrew from the market literally overnight and that vacuum remains to be filled.

I think businesses need to be flexible in their approach to sourcing finance and maximise the security that sits within the business. That means seeking specialist forms of finance from specialised providers. If your bank can offer 80% against your debtors can an independent specialist invoice discounting provider offer more? The same applies to asset finance and commercial mortgages – shop around and maximise the amount of finance you can generate.

I have recently taken on a case for a client who is leaving a back office service provider and wanted to highlight some risks associated with employing such a company.

My client is a recruitment business who use a back office service provider to raise invoices, do the payroll, credit control, etc.. This service is similar to factoring but is typically provided to temporary recruitment agencies as an opportunity to outsource almost everyting so the business van focus on sales and placements.

These services receive varied feedback in terms of service levels but unfortunately in this instance the implications are for more serious. The lender concerned has failed to pay over circa £500,000 of monies that was due to HMRC and do not appear to be in any position to do so soon. It would appear that our client remains ultimately responsible for bringing the situation up to date with HMRC.

I understand there was a similar situation with a payroll finance company called Wageroller who went under leaving their clients owing large sums to HMRC.

There are obviously some very reputable providers and Lloyds TSB are possibly the largest with their Cash Friday facility. The fact remains that not all other providers seem to be as reputable or as financially robust so be careful.

I have not mentioned the providers name as I have not spoken to them to hear if there is another side to the story. It does however raise concerns and is certainly worth a post.