When most of us hear the word surprise, it is usually associated with a good feeling that was unexpected. In the business world, surprises sometimes have a very different meaning that does not have the same good feeling associated with it.
Having worked as an accountant, controller and chief financial officer for both small and large companies, the word surprise can send nervous chills up the spine of management. In accounting, surprises can come in the form of a forgotten journal entry, an under accrued expense or an overstatement of a revenue item. In most cases, these types of surprises have a negative impact on the bottom line causing great discomfort to both the superior and subordinate.
In the factoring industry the same surprise concept holds true.
I find this point especially true during the evaluation of a prospect. At our company we receive applications directly from prospects, brokers and in house sales accounts. It is during this process we require a completed application along with supplemental documentation. Before we generate any reports we always ask the applicant or broker if there is anything that will have a material effect on the evaluation. In other words, tell us as much as you know so we do not come across any surprises. I am pleased to report that in most cases our experience has been that the prospect will give us full disclosure up front.
Unfortunately, there are times when we will find a tax lien, judgment or other derogatory ding on their credit report that was surprisingly forgotten. Anyone who works in the factoring industry knows these are common and it is our job as funders to find a way to work around these situations. For example, you will be amazed to find how cooperative the IRS can be in helping businesses with overdue taxes. On more than one occasion we were able to get our client on a payment plan and avoid their intent to levy. The payment plan allowed us to assist the client in paying the overdue taxes by providing additional cash flow.
For us, the problem lies with the prospect who does not disclose items that will have a material effect on the evaluation. Once we find one questionable item we then start to ask ourselves what other information have they forgotten? Whether you are an applicant or broker, be upfront and disclose as much information as possible to help the factor get the deal funded. Save the surprises for the holidays.
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 June 10, 2012.