Factoring Companies Guidebook
High Involvement (Concentration)
Definition
Any debtor's balance that represents a significant proportion of the outstanding debts.
Concerns
A dispute on a concentrated debtor can cause major cash flow problems for the Client, as can the loss of such a debtor, either through cessation of trade or a move to a competitor. There may also be a greater risk of fraud due to collusion, where the values involved make a very close relationship between the client and the customer. In a collect out situation the inability to collect one large debtor may lead to a loss overall to us.
Identification
The percentage of the debt for the top ten debtors, in relation to the total approved (fundable) debt should be calculated.
Treatment
Where concentration levels exceed agreed parameters, reserves for the excess should be recommended.
