Factoring can provide a valuable source of funding for your business if your debtor book is of sufficient quality. However, if you are involved in a higher risk activity, the charges and penalties can be prohibitive - such as construction. Moreover, many smaller companies do not have the staff to follow up the agreed invoicing process, then get hit by hidden charge after hidden charge.
Most factoring providers insist on personal guarantees and often underpin this with a charge on the family home as well as a company debenture (charges on business assets). So if insolvency (the profit for the factoring company is in insolvency) occurs and you need to close the company, factoring is protected and the director can be at an extreme risk.
If your bank is the factoring provider or an associated company then the risk to the company becomes even greater. The bank will now have absolute control over the company finances and can place an administrator in charge of their choice – not yours - at any time without reason.
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