The Straight Truth About Invoice Factoring

Whenever you hear someone say they are going to give you the straight truth about a person or particular subject it usually isn’t good news. In a world where we are inundated with posts, tweets and instantaneous information it’s very easy to only get the information people want you to hear. When it comes to the factoring industry it’s very easy to get roped into thinking that it’s just about getting some capital, advance on receivables and make huge returns.

What is the actual truth about the factoring industry?

Anyone who works in the industry is entitled to their own opinion therefore, I will go on record and say that the views below are only mine based on my experiences as a broker, funder and due diligence coordinator.

Truth #1–Factoring invoices is not as easy as everyone thinks.
Sure, the concept and mechanics of invoice factoring are very straightforward but each deal is unique.

Experience has taught us that pure vanilla factoring deals are rare. In other words, almost every deal has a “but” in it.

How often do you come across the perfect client with stellar account debtors but they have a recent tax lien that has not been addressed? Or what about the well known account debtor that the prospect just landed but refuses to verify invoices? For those of you new to the factoring game you will find that much of closing new deals depends on your ability to work around the objections while protecting your security interest in the transactions.

Truth #2–There is no due diligence template.

So often we get calls from new factors about how we evaluate new prospects.

Should we run the UCC-1 search first or should we pull the credit report?
Do you send out notices of assignment before the agreements are signed?
Does my company’s name have to be on the remittance?

These are just a few of the typical questions we get regarding due diligence. The best way to answer this is that you can do as much or as little as you like when it comes to your company’s due diligence policies and procedures (although we recommend that you take as much precaution as possible). As a point of reference there are many great resources available for anyone interested in getting started in the factoring industry. For more information see our July 2011 article, “Starting Your Own Factoring Business? It’s Your Call”.

Truth #3–Factoring is about relationships.

In other financing industries it’s basically a one and done type situation. When a mortgage company closes a loan they are on to the next deal. The same is usually true in any other type of financing arrangement.

Invoice factoring is different.

Unlike traditional loans, factoring companies are constantly interacting with their clients. Whether it’s funding a new invoice, rebating receipts or adjusting escrow accounts, there will always be activity between the client and factor.

What other truths are out there that I’m missing? Feel free to give us your comments.

This article was written by our president Don D’Ambrosio and originally published in Factoring Investor on January 27, 2014.

Don D’Ambrosio is the president of Oxygen Funding, Inc., an invoice factoring company located in Lake Forest, California.
For more information, he can be reached at don.dambrosio@oxygenfunding.com or you can visit his company’s website oxygenfunding.com

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