Factoring Companies Guidebook

Where the Client retains on their premises the tooling, for products of their manufacture but they remain the property of the debtor.

Invoices for any items, which are designed to enable production of finished goods.

They can be raised on completion of the tool or as part of stage invoicing either one third billing on each design, manufacture and commission or on the final invoice for the whole production job.

Examples of tools are:-

• Moulds
• Dies
• Artwork
• Jigs
• Patterns

With the increasing use of technology, tools may now be represented by patterns, held or transferred digitally on computer disks.

See also: - 'Free Issue Material', 'Goods in Trust Insurance'.

Concerns

Tools, by their very nature, are for use by the Client in the production of finished goods for the customer and as such, are only of value to the customer once proven to work i.e. after the production run, or after testing and sign off by the customer. Additionally they may be of a design which can only be utilised by that Client and therefore are of no value to the customer if the Client ceases trading. Where invoiced in advance of the run, dependent upon terms of the order, the debt may consequently prove to be unenforceable.

A further issue surrounds the value of tools held by the Client for which the customer has previously been invoiced. An attempt to offset such value against debts may be successful if they cannot be returned in the event of Client failure.

Alternatively, the retention of the tooling by the Client may assist in the enforcement of recovery of the debt, where the production of the tool is a lengthy process and the balance of the constituent parts are critical e.g. different metal contents. In situations where the customer production runs are dependent on the continuing supply of the product manufactured from the tool, it may be in the customer's interest to ensure the outstanding debts are paid promptly to facilitate their recovery of the tooling, to pass to another manufacturer.

The nature of the product should also be considered in relation to any potential claim for Liquidated Damages in the event of product failure or failure arising from any defect in the tooling. This assumes that the tool is manufactured by the Client and not supplied by their customer.

Identification

Review purchase orders and invoices and enquire about such items whilst touring the Client's premises.

Tooling invoices are generally identified within the Sales Ledger as large round sum amounts.

Tooling is prevalent in the following industries:-

• Engineering
• Automotive
• Printing

Treatment

Tooling invoices raised in advance of production should be reserved in full.

The Client should be encouraged to maintain comprehensive records of all tools held, whether issued to customers or provided free by customers (Free Issue Material).

Ultimately, the funding of tooling invoices depends on the terms and conditions surrounding the construction of the tooling, payment terms, ownership, any potential claims for Liquidated Damages in the event of product failure and potential offset.