Factoring Companies Guidebook

An invoice which is raised for the use of a product over a period, rather than the customer taking ownership or title of the goods i.e. where the client is hiring or renting goods to debtor for indefinite or defined periods.

Concerns

Such invoices tend to be raised in advance of the rental or hire period and can include, in the case of plant hire, the hire of staff to operate the equipment.

If the customer does not have the use of goods for the pre agreed period, or the operator is not available through the course of the hire, the invoice will not be paid. Disputes may arise for reasons such as equipment down-time/failure, liability for repairs, the goods not being delivered to site at the pre-arranged time or even being delivered but the site not being ready to take or accept the delivery. The client may also continue to charge beyond the agreed period if the goods are not returned on time, based on clauses within its own terms and conditions, which the customer may not have accepted. Non-return may be due to the equipment not being capable of being returned due to it awaiting repair, or non-collection by the client. Where the invoice is paid in advance of completion of the period and the client has not fulfilled the terms of the hire or rental, that payment may be offset against other outstanding invoices. This may further be compounded by penalty clauses for non-fulfillment.

Identification

Some industries e.g. Plant Hire indicate by their very nature, a pre-disposition to this type of invoicing.

Make enquiries with the client as to whether they rent or hire goods or services to customers. Review invoices and credit notes for any reference to rental or hire and the periods covered, as well as the client's terms and conditions of sale.

Treatment

Any invoices raised in advance of delivery of the goods or completion of the service are unlikely to be factored or if assigned may not be funded. Where the potential offset exists or recourse for non-fulfillment, we should put a reserve in place to cover its exposure, taking account of the rental/hire period and the time lapse between invoicing and satisfaction of the rental/hire, or the outstanding period.

All hire/rental invoices should be supported by signed delivery and return notes as well as timesheets for hours worked. The latter may include equipment as well as the operators, as it should itemise any down or repair time, which may or may not be chargeable, as it is often difficult to prove the 'on-hire - off-hire' periods and responsibility for the maintenance of the equipment.