A FACTORING or invoice discounting agreement is an increasingly popular option for businesses looking to finance growth.

In the first half of l996, Britain's 12 largest factoring and invoice discounting companies saw business grow by 18.3 per cent over the same time last year. But that said, there are still certain criteria which need to be taken into consideration when choosing a factoring and invoice discounting supplier, as there can be pitfalls for the uninitiated.

Peter Mill, head of marketing, Lombard NatWest, the largest UK supplier of factoring and invoice discounting services, provides some pointers worth considering when looking to sign up with a factoring or invoice discounting house.

1. Level of 'approved' invoices:

Factoring and discounting companies will usually offer finance of 75 or 80 per cent of the value of invoices, but this is only of invoices 'approved' by the factor - that is, invoices to customers whom they consider creditworthy. It is therefore sensible to get some indication of the level of approved customers (and therefore the likely level of finance) from the factor or discounter before entering into a contract with them.

2. Method of payment:

The larger suppliers of factoring and invoice discounting makes routine payments to their clients by BACS and offer CHAPS payment for a small extra charge. But many of the smaller factors are still making payment by cheques, which involves the client in postal delays and the inherent delays due to cheque clearing times.

3. Speed of information:

Lombard NatWest and some of its competitors provide clients with the facility to see, on a PC screen in their own offices, the exact amount of finance available each day and up-to-date details of every customer account in the sales ledger. Why use a factor or discounter who sends paper reports by post?

4. Period of notice:

Most of the larger factors offer contracts which can be terminated by giving three months notice in writing. But some factors still offer contracts which require the client to give at least 12 months notice in writing - rather a long time if you want to end the relationship!

For further information and a brochure, please contact Norman Denton, senior business manager, NatWest Warrington Business Centre, tel 01925 575016.

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