Factoring Companies Guidebook
Capital Goods
These are generally items of a larger value that the purchaser would use to produce goods or services they sell. These will normally be used for longer than one year as opposed to consumables/expendables. An element of installation may be involved and a third party, via Hire Purchase or Leasing may finance the transaction.
Concerns
As capital items are usually large any dispute will involve a significant amount. Deposits, Guarantees and Warranties are also likely to form part of the terms of sale. Guarantees and Warranties need to be fully investigated and dealt with carefully. Certainly any debts including Warranties exceeding 12 months are not normally considered discountable.
Payment may only be payable after installation, if goods and the installation are invoiced separately, amounts may be advanced on these goods, dependant on the terms of sale. If the client ceases trading before installation, collection may be impossible or be subject to offset for damages. (This may be a form of Partial Billing), "Retention's" may also form part of the terms, whereby the debtor withholds an amount based on successful operation of the machine for a specified period.
Care needs to be taken to identify the actual debtor for such items. Where the recipient of the goods arranges for payment through Hire Purchase or Leasing arrangement with a Finance Company, the Finance Company is responsible for the payment to the Client and therefore us. Unless this is identified early the recipient may be invoiced rather than the Finance Company. A situation could then arise where the Finance Company has paid for the goods and the original invoice to the end customer remains outstanding on the ledger, remaining funded.
Identification
A review of the nature of the product will determine the value and its definition as a capital or revenue item. A review of invoices and orders should be carried out to identify installation and the method for invoicing this aspect of the business, if applicable.
Treatment
Capital items may not be suitable for Discounting due to the problems set out above. Where installation is involved invoices should not be assigned until the work is fully completed and evidenced by a Satisfaction Note, Letter of Acceptance or other proof of completion. Generally, these items should not be factored.
