Can I amend or cancel an invoice factoring agreement?

If you wish to modify your current invoice factoring arrangement or end the facility, examine the amendment or termination conditions outlined in your contract. If you are within the notice period for termination, you might be able to conclude the agreement without incurring a financial penalty.


Can you renegotiate an existing invoice factoring arrangement?

If you have entered a factoring agreement but now wish to make changes or reconsider some terms, you may be contemplating whether it’s possible to amend or exit the contract.

There are options for modifying and terminating an invoice finance contract. Some may entail additional fees, but careful planning in advance can help minimise extra costs. So, what steps should you take if you are dissatisfied with the current arrangement?


Check for amendment or termination conditions in your contract

Factoring contracts come with a minimum term and a notice period for termination. These terms will guide your next steps, although terminating the contract may be possible by paying a financial penalty.

Contracts usually provide detailed instructions for termination, specifying a procedure for giving notice and a timeframe. It is crucial to carefully review the small print or consult a trustworthy finance broker to guide you through the details.


Be clear about why you want to change or exit the agreement

Are you facing challenges with the released amount of money? 

Perhaps the charges seem excessive, or you believe another finance product would better suit your operations.

Invoice finance is inherently flexible, providing numerous variations within each product. If you opted for factoring over invoice discounting, you might find it preferable to manage your own credit control or keep the arrangement confidential from new customers.


Solutions if you’re not happy with invoice factoring

Invoice discounting as an alternative

Opting for invoice discounting gives you control over your sales ledger, a choice some businesses make to uphold strong customer relationships.

However, if confidentiality is the primary concern, invoice factoring provides a confidential option where payments are pursued in your company’s name. Your customers remain unaware of the factoring agreement.

The funds are collected by the lender and deposited into a ‘trust’ account under their control but in your business name. Although slightly more expensive, this arrangement is simpler than transitioning to invoice discounting.

Are costs too high?

Your lender might be open to negotiating costs to keep your business or adjust terms slightly to lower ongoing fees. Alternatively, you can seek quotes from other factoring companies and thoroughly compare them with your current arrangement.

In the competitive market with numerous factoring providers seeking new business, this could play to your advantage. However, it’s essential to calculate the total cost of changing companies over the entire contract term, where a broker can assist with the figures.

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If product migration is the only solution

Effective planning is crucial when transitioning from invoice factoring to discounting. You must prepare for the funding gap in advance and strive to minimise the negative impact on your cash position.

So what will you need to consider? 

  • Credit Control: Consider hiring additional staff for payment collection if handling it internally is not feasible.
  • Timing: Determine the most suitable part of the month to implement the change.
  • Arranging New Finance: Whether sticking with invoice finance or exploring an alternative source, carefully plan to bridge the funding gap and avoid a sudden decrease in working capital.
  • Giving Notice on Your Factoring Contract: Only provide notice to your existing lender once all other aspects are in place. 

Transitioning between products with the same lender is naturally simpler than changing providers. Regardless of your reasons for change or exit, it’s beneficial to question all proposed and existing costs to achieve the optimal outcome.

If uncertain about terminating or changing a factoring finance contract, Vanguard Insolvency can assist. With extensive industry knowledge and connections with lenders across the UK, our advisors offer unbiased, independent guidance on the best way forward.

David Jackson MD
Senior Partner at Vanguard Insolvency Practitioners | Website

I am an insolvency professional with a distinguished career specialising in commercial insolvency, adeptly navigating Creditors Voluntary Liquidation, Company Voluntary Arrangements, and Company Administrations. With a comprehensive understanding of insolvency laws and an unwavering commitment to ethical practices.