Factoring Companies Guidebook

Any product, which is returned to the Client, for additional work to be done, to bring it up to the required standard/quality.

Concerns

Any goods returned for rework will obviously not be paid for until they have been reworked and then returned to and accepted by, the customer. In normal circumstances, a credit note would be issued and the goods replaced. Rework effectively dilutes our security for a period of time, possibly permanently, if the reworked product is not accepted. If the returned product is one of a batch, consistently produced from the same tool, the erosion to our security could be increased considerably. Not only through the rejection of goods, but also dependant on the product, terms and conditions of sale, potential damages claims and any claims being offset against other outstanding invoices.

Identification

Products potentially subject to reworking are usually of a bespoke nature and enquiries should be made with the Client as to whether they produce bespoke products, or receive goods back for re working.

Review the nature of invoices, customer orders and terms and conditions. The ageing of the sales ledger may indicate invoices unpaid whilst the goods are being reworked.

Also check the 'goods returned' book for large volumes of returns and maybe visit the area to view them. If these are mixed in with goods being delivered into the Client you can usually tell the difference as the packaging quality is poor.

Treatment

If this type of work is identified, its extent and the time delays involved in reworking should be calculated and an appropriate reserve put in place.