Factoring Companies Guidebook

An 'Associated Company' may be defined as "Any commercial relationship, past or present, which influences, or was influenced by the prime movers of the Client or its guarantors."

This may be expanded further to incorporate any sale made by the Client to a person or company other than normal third party sales, for example where the relationship is additional to that of merely seller and purchaser. Such parties include the following:-

• Parent companies with common directors
• Subsidiary Companies

Associated companies employees (staff, reps and shareholders)

• Companies with common shareholders

In the case of MBOs/MBIs and Acquisitions this may include any companies associated with the Vendor Company, where there is deferred consideration.

Concerns

Such sales cannot be said to be at "arms length" and therefore may be difficult to collect in a gone concern situation. The potential for fraud through collusion is increased. Where the company sells to individuals it is not possible to ensure their credit worthiness or independence. In the case of franchise agreement the demise of the franchiser would inevitably lead to the demise of the franchisee leaving the debt unpaid. Sales to staff or other associated employees would not generally be confirmed by signing of a proof of delivery document and therefore there would be no confirmation of debt or the individual's liability. Where there is a Deferred Consideration payable subsequent to an acquisition, there is a potential for offset against any outstanding debt due from any Vendor group companies if the deferred consideration is not paid and satisfied.

Identification

A list of all known associated companies should be obtained at the survey and up-dated regularly thereafter, by questioning the Client; reviewing the aged debt and obtaining a Companies House search. Individuals will also be identified from the customer account names on the Sales Ledger, with the names of the directors and shareholders being confirmed from our official company searches. Again it is essential that we regularly up-dates the information we hold, from visits to the Client and from official registers, as it may not have been informed by the Client, of any changes in directors or shareholders, which may ultimately give rise to a change in ownership and control. Franchisees will normally be identified from the nature of the business and its method of operation.

Treatment

Sales of this nature should be excluded from assignment. All outstanding balances should be reserved immediately with all future sales excluded.