Sir

I was pleased to see your recent article highlighting the role of factoring in supporting the SME community to secure the finance they need to grow. But it is important to clarify a point made by your financial specialist, Marco Terry, that factors ‘only buy invoices that are payable from companies with high credit ratings.’ That is simply not the case.

In factoring, the customer’s funding limits tends to be set at (up to) £15,000 before a credit rating is instigated. To suggest that factoring is only for businesses that have blue chip customers is completely wrong.

Factoring should not be confused with single invoice finance, which I suspect is what Mr Terry may be referring to.

In single invoice finance, sometimes referred to as ‘spot finance’, this is indeed typically (although again not uniquely) available to those businesses trading with a highly rated customer. The reason is simple: the lender only has one customer from whom to recover their money if things go wrong, so they tend to reduce their risk by, ideally, ensuring that the customer has less chance of failure. This does not protect against disputes etc but is a way of the lender reducing their risk profile.

Single invoice finance should therefore never be confused with mainstream factoring. The former is a new and rapidly growing market, attracting many new entrants, but still only represents a mere fraction of the total market.

On behalf of Simon Carter, Director – Touch Financial