Factoring Companies Guidebook

A properly constituted body which is set up to act in the trading interests of its members.

See also: - 'Hub & Spoke', 'Payment Clearing Houses'.

Concerns

An association member may pay the club or association direct rather than us in order to gain extra discount. As the debts have been purchased by us, it is a breach of the Agreement for the debtors to pay a third party. It may be difficult to retrieve the funds from the club in a gone concern situation and attempting to recover the funds due from the ultimate debtor, may require legal action if they argue that they has previously settled the debt through the club.

In continuing trading there will be erosion of the debt through trade/settlement or possibly retrospective discount. In instances where bad debts arise, or even overdue debts, there may be some liability on the supplier (Client) to take an element of the bad debt or the overdue amount, thus impacting on and eroding our security.

Dependant of the terms and conditions operating between the debtor or member and the club or association, there is the potential danger that the debtor may only be required to pay the association as the goods are sold i.e. on a consignment stock basis. In the absence of sight of terms and conditions this may be identifiable if we are aware of the club undertaking regular stock checks at the debtor's premises. It is highly unlikely that the club will remit funds to the Discounter until they have received them from their member or Client's debtor.

Identification

Examine the source of debtor receipts, to determine whether the funds are actually received from the named debtor and also whether a remittance advice covers a number of individual debtors.

Make enquiries of the Client as to whether any sales transactions are dealt with through trade associations.

Obtain and examine the terms and conditions of the trade association for anything which affects the collectability of the debt for us. The terms and conditions should cover both sale and purchase.

Obtain a copy of the agreement between the Client and the Association.

Business sectors where this type of trading exists:-

• Automotive
• Catering.