I realize this question may seem obvious to anyone who owns a factoring business.
Every business owner wants to succeed and have their company flourish which is why we took the leap of faith in the first place. Sometimes however, our actions or lack thereof can answer that question in ways that my surprise even the savviest entrepreneur.
Anyone familiar with the asset based lending industry knows there are numerous risks associated with invoice factoring. How many times have we heard from our salespeople,
“This prospect is a no brainer and we should be able to fund him in less than a day.”
Those of us that fund accounts receivable know that what many look like the perfect prospect could be your worst nightmare.
As I have previously wrote in the article, “Factoring, Is It Always About the Debtor?” we all know that there is no substitute for good underwriting policies and procedures that focus your due diligence on both the client and the account debtor. However, besides focusing strictly on underwriting guidelines, every now and then common sense can play a very large factor in determining if a certain deal is right for you. Below are a few common sense suggestions you may want to consider before you send out that next ACH or wire:
1) Does the factoring deal make sense?
I realize this may sound foolish, but I cannot tell you how many times there are conflicts between what the prospect says and the paperwork gathered with the application. If you cannot understand the deal flow, run it by a colleague or professional in that field who may have more experience and continue to ask questions.
2) How long has the prospect been in business?
Even though the debtor has excellent credit, if you client has no track record and produces faulty goods or delivers shabby services, chances are pretty good that you will wind up in a dispute and not get paid.
3) Why is the prospect looking for a new factoring company?
Whenever a prospect is leaving a factor and wanting to start a relationship with a new factor, be cautious. The prospect has every right to shop around because they may have received poor customer service or they feel they can get a more competitive rate from another factor. It may be worth your while to put a call into the current factoring company to see if they could provide some background on the client. Even though it may be an uncomfortable call, you will be surprised how many times factors cooperate with one another in buyout situations.
4) Is it best just to walk away?
This is probably the toughest one of all. You’ve worked so hard to bring in this lead, gather the paperwork and the returns look amazing. Unfortunately, the deal just doesn’t fit your company’s profile. As a very good friend and colleague of mine once told me when I first started my business, “Sometimes the best deal is no deal.”
We are happy to discuss our factoring programs between 9:00-5:00 PST at (800) 790-3419. You may also visit our website Oxygen Funding for more information.
This article was written by our president Don D’Ambrosio and originally published in Factoring Investor on September 12, 2011.