The follies of factoring your accounts – how it can go horribly wrong - and telling 'porkies' to the factoring agency will end in disaster

Factoring your accounts may sound like a good idea on the face of it but the down side is the opposite of what is supposed to happen: company failure.

“There are exceptions to the rule but I generally advise against factoring,” said ICSM’s Ian Carrotte. “Yes it can improve cash flow in the short term and it takes away one of the headaches of business – that of chasing payment. But factoring is essentially a form of borrowing and that means you will have to pay a fee which is another overhead.”

He said there can also be a loss of control if the factoring company insists on you dropping some clients and concentrating on the better payers. “When that happens you might as well do the chasing yourself and not factor your accounts,” he added, “if you use a strict credit control and drop customers who are slow payers then there is no point in factoring.”

Factoring a factor in ban

Print Week reported this month on the ban handed to the managing director of Pure Point of Sale Limited - one Russell Ivan Murch.

The company in Lutterworth was at the centre of dispute in which Russell Ivan Murch had asked HSBC Invoice Finance to charge a customer £185,000 which they did. Except the invoice was fraudulent. The factoring company paid up to the Lutterworth company but then found the fraud and the invoice was disputed.

Print Week reported: “Murch told the Insolvency Service that he had informed the factoring company that due to ill health, the company’s sales manager had taken control of the company and that this employee was inflating sales. However, the factoring company had no record of either discussion.  At the time of its liquidation, Pure Point owed the factoring company more than £257,000.”

Dishonesty costs

Ian Carrotte said that once you tell one ‘porky’ you then have to tell another and using factoring in business you will get found out. “As the Insolvency Service said Murch’s behaviour was unacceptable and it effectively brought the print firm down, and put people out of work as well as ruining his reputation. It’s a salutary lesson.”

Print Week said the disqualification means he cannot act as a director of a company, direct other people to manage a company under his instructions, or take part in the promotion, formation or management of a company or limited liability partnership. 

About ICSM Credit

ICSM Credit has more than four decades of experience as a credit intelligence group whose members gain inside information about firms in trouble allowing them to avoid bad debts and rogue traders. To join costs less than a tank of fuel - while at the moment there's a special free temporary membership offer during the Covid-19 crisis which gives access to free legal letters. ICSM also has an effective debt collecting service which has a global reach - ask for details from Paul.

For details about ICSM Credit call 0844 854 1850 or visit the website www.icsmcredit.com or email Ian at Ian.carrotte@icsmcredit.com on how to subscribe and to join the UK’s credit intelligence network to avoid bad debts and late payers. Follow ICSM Credit on FaceBook, Twitter and YouTube and Ian Carrotte on LinkedIn.

To keep up to date subscribe to the FREE ICSM Credit Newsletter to hear all the latest insolvency news and to see who has gone out of business click on the orange panel on the top left of the home page of the website www.icsmcredit.com or send an email to Ian.carrotte@icsmcredit.com

For details for the work of the journalist Harry Mottram visit www.harrymottram.co.uk