Factoring Companies Guidebook
Bill & Hold
Where a client produces goods for a customer but, as required by the customer, retains the good on the Client's own premises awaiting call-off, i.e. they have been invoiced but not delivered. This invariably may be at the request of the customer, but it may also simply be a devise by the Client to obtain early payment from them (or from the Discounter).
Concerns
In the event of the demise of the Client, the customer would be entitled to withhold payment until delivery of the goods has been made. This delivery could not always be assured and therefore payment could also not be guaranteed.
Identification
Enquire from the Client as to whether they hold any goods for which they have already issued invoices. Visit the Client's premises to identify finished products, the customer to which those products relate and the stage of invoicing for them. Carry out a shipping test to identify invoices for which no delivery has yet been made. (This may be "Pre-Invoicing" rather than Bill and Hold).
We must also be aware that those goods which may be subject to a Bill & Hold arrangement need not necessarily be held at the Client's own premises. If they are held in a rented warehouse, they could also be subject to a "'Warehouse Lien" over the goods, so the goods may not be released until the rental or storage costs have been paid. Enquiries must also therefore be made as to the exact location where the goods are stored and the terms of storage.
Treatment
Ideally the goods must be clearly identified, segregated, their precise location identified and terms of storage all recorded in a register. They should also be subject to written confirmation from the customer that they are held by request. The customer must confirm that they accept liability and risk in the goods held on the Client's premises and that payment will be made unconditionally upon receipt of the invoice. We should also satisfy ourselves as to the conditions of storage, i.e. for perishable goods, rust or other damage caused through water penetration, any insurance arrangements and the liability for insurance cover.
If the goods are stored at a location not owned or controlled by the Client, we should confirm at regular intervals that the rent or storage costs are paid to date by obtaining copies of the creditors and/or nominal ledgers. Also ensuring that the subsequent release of goods will not be prohibited by a warehouseman's or carrier's lien over them.
In the absence of us being satisfied that these controls and arrangements are in place to safe guard security, the full value of the debt relating to these goods should be excluded or reserved in full.
