Letter: Benefits of factoring to small firms

Sir: I am sorry to learn of Francis Evans's unhappy experience of factoring (Letters, 19 August). His letter does, however, give two clues as to the type of service used. He writes of a customer with a high credit limit from a factor going under within a month of that recommendation. This must have been from a recourse factor, where the risk of non-payment remained with the client. Otherwise the factor, having accepted the risk, would have paid that client the full amount owed, safeguarding profits and future cash flow.

Our company, the largest factor in the UK, paid out pounds 4.2m to our clients last year in just such circumstances.

Mr Evans also writes of the factor clawing back funds where customers breached payment terms. Again, this is a characteristic of recourse factoring. If the customer fails to pay, then the recourse factor will reclaim the funds prepaid, since they remained at the client's risk. But if the contract was for full service factoring, including bad debt protection, then the factor, far from clawing back the (say) 80 per cent prepaid, would have paid out the remaining 20 per cent when the debtor failed.

I do agree with Mr Evans's last recommendation to speak to existing users and identify the most appropriate service before rushing into a factoring contract.

Yours sincerely,

TOM HUTSON

Managing director

International Factors

Brighton