Letter: Unpleasant facts about factoring

Sir: Charles Hoffner's letter (17 August) brought a wry smile to my face, as I read once again of the advantages of invoice factoring for the small business. Exactly the same arguments were used by our bank to lure us into the clutches of their factoring subsidiary, until we managed to extricate ourselves a few months ago.

Others I know of were less fortunate; one customer of ours was forced into receivership when a client who had been recommended by the same factoring company and given a high credit limit went under within a month of the recommendation. Our customer could probably have survived this setback, were it not for the fact that the factors then kept all other payments for themselves, until the invoices issued to the client were cleared. We had similar problems when funds advanced were clawed back as soon as customers breached our trading terms, which they did just as often with the factors as without.

In short, we found the benefits of factoring to be largely illusory whereas the drawbacks - such as loss of control of our sales ledger, high charges and often absurd credit limits - were all too tangible. Glad though I am to read that Mr Hoffner's business benefited from factoring, I would urge any of your readers thinking of following his example to speak to existing users of the service before they commit themselves. I wish we had done so.

Yours faithfully,

FRANCIS EVANS

Whitbourne Enterprises

Bromyard,

Herefordshire

17 August