A brief overview on the day-to-day operation of a factoring facility. You sign-up – what happens next?

The following article sets-out to illustrate the basic day-to-day routines in the operation of a full factoring facility from the perspective of the enterprise entering into the factoring arrangement hereafter referred to as the ‘client’. The factoring company will be referred to as the ‘factor’ and customers of the client will be referred to as ‘debtors’.

a) The completion of the factoring documentation should be followed-up by the factoring company providing an induction to its operational procedures including an explanation of reports provided and stationery used.

b) The client will provide the factor with details of all debts currently outstanding together with debtor names and addresses including contact details and telephone numbers. The factor will post details to its sales ledger and will in most cases provide an open-item listing of the initial take-on for the client to check for accuracy. The factor will send a statement of account to each debtor together with a letter from the client advising the debtor of the involvement of the factor.

c) After the completion of a) and b) above the factor will make available to the client the agreed percentage advance against the sales ledger. It is at the discretion of the client as to how much of this availability it takes.

d) All future invoices will carry an assignment clause notifying the debtor of the factoring arrangement giving instruction that payments should be made direct to the factor. A schedule of invoices and credit notes will be required to be sent to the factor on a regular basis using the factor’s stationery to summarise the details and attaching copy invoices/credit notes to this schedule. This information can be sent electronically.

e) Having accepted the assignment of invoices the factor will make available the agreed percentage of funding adding this to the current funds available to the client.

f) The factor will take responsibility for collecting payments from debtors as invoices full due for payment. They will chase overdue debts by sending reminder letters or by making telephone calls and will normally send a statement to the debtor once a month. Many factors will agree a collection procedure to suit the requirements of the client.

g) As payments are received by the factor from debtors the sum advanced to the client is reduced and the residue of the percentage advance is made available to the client. Additionally a cash report will be sent to the client giving details of invoices paid.

h) The factor will send regular statements to the client normally monthly showing details of invoices and credit notes factored, advances made, factoring charges and cash received from debtors