Excepts from an article by BRW in April 2013.
No longer last chance lending
...General manager Peter Toohey has worked in the industry for nearly two decades and remembers when the financial arrangement was widely frowned upon.
"Factoring was once seen as your last chance before your company fell over. There were plenty of cowboys who used to offer factoring that have been forced out of the industry over the years. There were stories of firms that weren't collecting money or were collecting aggressively, which annoyed clients," Toohey says.
"There's a fine line between chasing the money and chasing too hard to get it on behalf of your clients. You've got to know when to back off, because you're chasing funds from your clients' customers."
John Paolacci is the director of business services at accounting and advising firm Moore Stephens Melbourne. He agrees that factoring was once only utilised by the most desperate business operators as a last resort before the firm went under.
"It was very rare to see a client take it up. But the service has changed a lot, and it probably suits clients that needs the cash flow or have to deal with seasonal fluctuations.
"The charges are cheaper and it's an effective and reasonable rate, which has come down a lot in relation to the risk involved," Paolacci says.
"While it doesn't suit all businesses, if you have a growing business with cash flow issues and slow payers, it could be ideal.
"Although there is quite a lot of administration involved, so it isn't something I'd do lightly and I'd probably look at traditional financing first.
"But if you're in financial stress and the banks don't want to do a line of credit, it could work. You need to look at your business' credit controls and plan in advance."
...Like it or not, factoring looks like it's here to stay. DIFA predicts that demand will continue to grow as SMEs use the facility to grow their business against a raft of market pressures.
FactorOne's Toohey agrees, adding that he expects to see greater competition as British lenders enter the Australian market.
"We've all smartened up our act these days. This is a great way for companies to access cash tied up in the ledger and use it to grow their business," Toohey says.
