Anyone used invoice factoring?

[Ernest Burden III]

Has anyone, especially in the US, used invoice factoring? That is where you 'sell' your outstanding invoice for an immediate percentage payment of the amount, the factor then owns the debt and collects from your client.

 

I have never tried it, first, because most clients pay promptly enough, and then because I think it could create an uncomfortable situation with the client when they are forced to deal with a company who just wants their money damn-it, finally because many of my clients are small and poorly run businesses, so I would have to pay a bigger percentage due to the risk of them defaulting.

 

But I have one client who is large and well-run as a contractor to a multi-state governmental transport agency (bridges, tunnels and airports). I'm not worried about getting paid, I'm worried about living long enough for it to happen. It sometimes takes six months.

 

So any thoughts on experiences factoring rendering invoices, good/bad ?

[Scott Schroeder]

I didn't know you could hire Moose and Rocko to help the Judge find his checkbook....

 

 

I haven't used that service but it seems you have to really think about it first. If you have to wait a few months to be paid in full, then maybe it's not worth the percentage you get. Which, I have to imagine that percentage is pretty low given that they know have to go after someone to get their payment.

 

If there is not literal hope of being paid full in over a year or so, then it might start to become worth just taking a percentage and letting someone else deal with the headache. As far client relations, this would probably be you setting fire to the bridge, then burning the ashes, then burning them again. But then again, if they are being terrible paying clients then you probably don't want to work with them again.

[Justin Hunt]

I was recently talking with a friend of mine who contracts electrical work for Main roads, ie invoices government departments. The two bits of advice he had were, talk with them to find out exactly what their payment schedule is and what information they require to pay promptly. Second is to add in a bit extra to take into account the longer payment time. enough to cover overdraft interest and the like. He knows that some contractors factor in as much as a 1/3 extra to cover this. Granted they are dealing with many 1000's of dollars worth of invoices and have a lot of staff to pay.

 

In the past I have looked into using such services, I had a big outstanding invoice (over a year old) and the client was on the brink of bankruptcy. Before I engaged them I spoke with the client, informing him of the situation and that I would be passing the invoice on. He got quite rude but payed up. He did come back to me with more work, but I knocked him back.

[Ernest Burden III]

If there is not literal hope of being paid full in over a year or so, then it might start to become worth just taking a percentage and letting someone else deal with the headache. As far client relations, this would probably be you setting fire to the bridge...

 

The second part is a concern, as I said.

 

This situation is NOT about a problem client. They are easy to work for (large engineering firm) and pay really well. Further, I was told how their billing works when I first worked for them. It takes at least three months, but sometimes six or more, from invoice (so add the production time before that). No retainer, but close to zero risk of default. It's just a matter of the wait. Sometimes the check is close to 1/2 of my sales for the entire year. So an extra month, or two or three makes me sweat.

 

It made me wonder today as I wait for word if my invoice will be paid this month, or next (or next) if this might be a time to look at factoring. So no one has actually done it?

[Justin Hunt]

is there any way to break up into smaller monthly invoices? or milestone invoices

[Ernest Burden III]

is there any way to break up into smaller monthly invoices?...

 

Not retroactively, but yes, I should have been billing monthly for hours worked. I just have this concept that I have earned my pay when I produce final deliverables. The chief engineer's reply to that thought was "this is government work".

[Justin Hunt]

exactly, there is no end in government work:)

 

they also don't want to have outstanding invoices on their books, it raises too many questions when there is a pile of money left over, probably more than if there was no money and were running over budget.

[innerdream]

Has anyone, especially in the US, used invoice factoring? That is where you 'sell' your outstanding invoice for an immediate percentage payment of the amount, the factor then owns the debt and collects from your client.

 

I have never tried it, first, because most clients pay promptly enough, and then because I think it could create an uncomfortable situation with the client when they are forced to deal with a company who just wants their money damn-it, finally because many of my clients are small and poorly run businesses, so I would have to pay a bigger percentage due to the risk of them defaulting.

 

But I have one client who is large and well-run as a contractor to a multi-state governmental transport agency (bridges, tunnels and airports). I'm not worried about getting paid, I'm worried about living long enough for it to happen. It sometimes takes six months.

 

So any thoughts on experiences factoring rendering invoices, good/bad ?

 

No I don't have experience with this. But, I think an Escrow service should be the norm for us independent contractors. It'll weed out the dead beats and you'll get paid when the job is complete. Most freelance web sites work this way.

[joneytran]

The chief engineer's reply to that thought was "this is government work

[Devin Johnston]

I have a similar client that sometimes goes 4 months before paying, it was an adjustment at first but they have always paid over the course of 2 years and the make up over half of my work at the moment. My advice would be to either break up payments into 25% increments billed every month or two or just resign yourself to the fact that payment will take a while to arrive and be ok with it. You could also try getting them to pay you directly with something like Paypal.

[Ernest Burden III]

I have a similar client that sometimes goes 4 months before paying, it was an adjustment at first but they have always paid...

 

Yes, as I said, I am not worried that I will be paid, it's just a matter of my ever-shortening natural lifespan leaving me less patient.

 

OH, but THIS, NOW!

 

My client has been fully paid by the gov. agency for my invoice (plus their markup on top of it), and so is working on 'releasing' my check. Corporate starts asking me to prove that my business is set up right and properly insured. So the end of last week involved notarized letters to deliver by hand so I can retroactively qualify to do the work I've already done. Now you ask? I've gone through about five project invoices with them in the last four years. Arggg. Can I have my check now?

 

How 'bout now?

[innerdream]

Yes, as I said, I am not worried that I will be paid, it's just a matter of my ever-shortening natural lifespan leaving me less patient.

 

OH, but THIS, NOW!

 

My client has been fully paid by the gov. agency for my invoice (plus their markup on top of it), and so is working on 'releasing' my check. Corporate starts asking me to prove that my business is set up right and properly insured. So the end of last week involved notarized letters to deliver by hand so I can retroactively qualify to do the work I've already done. Now you ask? I've gone through about five project invoices with them in the last four years. Arggg. Can I have my check now?

 

How 'bout now?

 

Hate to say it they're hosing you man. Sometimes in life you have to know when to fire a client for your own health - one door shuts another opens.

[SkylineArch]

I've gone through about five project invoices with them in the last four years. Arggg.

 

There wouldn't be a second project until the first one went smooth and was paid on time. Most of the time it's not worth it.

[Ernest Burden III]

Hate to say it they're hosing you man. Sometimes in life you have to know when to fire a client for your own health...

 

Going back to the top--no, the client is just being a typical largescale client. They are great to work for, just slow to pay--which was explained before I started working for them. The thread is about an idea of how to manage the situation as a business.

 

Here's the thing--the slow pay cycle and bureaucracy is normal for public sector work. The pay is usually very good, by the way. But it is different being a small-time player in a big-time arena. I am about to start another animation on the same project showing the process to replace all the suspender cables on a major NY area bridge. It's a $1billion+ project. My part is a tiny afterthought.

 

Normal contractors on these big projects are getting hired to put in 200 miles of drainage piping, or provide all the steel cables, so these are contracts that will go on for years and pay every month. The three - six month delay in getting the payments in place and insurance proved and all that are what they know. They have people for that. The contract is bankable. They can take it to the bank for a line-of-credit, so they are not worrying about cash flow.

 

Not so much me, where I only have a one-at-a-time short-term contract. So rather than borrowing against the contract, I was wondering about borrowing against or selling the approved invoice. It's interesting that no one seems to have done that.

 

Some larger rendering studios have gone through all the hassles and insurance qualifications and bonding to be direct vendors on public sector work. They are set up to be hired directly by a city, or a transit system or airport authority. The work can pay really well. You just have to be able to endure what I'm going through, which is easier for a big firm than a small shop like me.

[innerdream]

Going back to the top--no, the client is just being a typical largescale client. They are great to work for, just slow to pay--which was explained before I started working for them. The thread is about an idea of how to manage the situation as a business.

 

Here's the thing--the slow pay cycle and bureaucracy is normal for public sector work. The pay is usually very good, by the way. But it is different being a small-time player in a big-time arena. I am about to start another animation on the same project showing the process to replace all the suspender cables on a major NY area bridge. It's a $1billion+ project. My part is a tiny afterthought.

 

Normal contractors on these big projects are getting hired to put in 200 miles of drainage piping, or provide all the steel cables, so these are contracts that will go on for years and pay every month. The three - six month delay in getting the payments in place and insurance proved and all that are what they know. They have people for that. The contract is bankable. They can take it to the bank for a line-of-credit, so they are not worrying about cash flow.

 

Not so much me, where I only have a one-at-a-time short-term contract. So rather than borrowing against the contract, I was wondering about borrowing against or selling the approved invoice. It's interesting that no one seems to have done that.

 

Some larger rendering studios have gone through all the hassles and insurance qualifications and bonding to be direct vendors on public sector work. They are set up to be hired directly by a city, or a transit system or airport authority. The work can pay really well. You just have to be able to endure what I'm going through, which is easier for a big firm than a small shop like me.

 

The bottom line is they are using you as their bank, that's what most companies do if they can. If you're unhappy with the billing cycle find another client. Why would you spend "more time" chasing money when you could spend that time chasing a client that fits for you.

 

The way I see it is you have 3 choices. Put up with the way it is, sell the invoice and take your medicine or move on.

Edited September 14, 2016 by innerdream

[John Dollus]

They are great to work for, just slow to pay--.

 

You and I have different definitions of 'great'.

 

Great is paying the required deposit and final payment on time as stipulated in the contract. Unacceptable would be requiring me to wait until a 3rd party contract participant releases funds.

[innerdream]

You and I have different definitions of 'great'.

 

Great is paying the required deposit and final payment on time as stipulated in the contract. Unacceptable would be requiring me to wait until a 3rd party contract participant releases funds.

 

I agree. I understand if it's half his yearly income the difficulty of walking away from that but sometimes you don't know what you don't know. If you stay stuck in a situation that isn't good you prevent something else from replacing it that's better for you.

[Ernest Burden III]

Yes, and thanks. I'm trying to be clear that I am not complaining. Any issues with this client and type of work comes back to me. I was just wondering aloud about a business service that could be useful, given the situation.

 

I say 'great client' because they are are easy-going, give me good information to work from (usually) and leave me alone to do my work. And the pay is higher than most other clients will consider. They will not be going out of business or get mad at me because the work isn't 'happy looking' enough, or something else that's hard to address, or they're 'pivoting their design focus'. It's straight-forward engineering illustration/animation.

[John Dollus]

From what I understand, the companies that purchase invoices can bundle them together as a debtors package and may then turn those over to a collection agency which, in turn, may harass your client using rather nasty methods. Naturally, this may affect your working relationship so I would not want to put that relationship in jeopardy and refrain from such measures.