Credit Trends From Both Sides of the Deal

One the most important aspects in closing any new factoring deal is approving the credit quality of the account debtors. At the end of the day, these are the folks that will be paying you for the invoices your client has decided to factor. As important as stable credit is for the account debtor, our position has always been to apply an equal amount of due diligence on the client as well.

Let’s start with applications and client trends. Without sounding overly optimistic, our position has been more favorable than that of years past, but we do remain cautious. The same current economic climate that has created opportunities within the asset based lending industry can also be your worst enemy. Unfortunately, many businesses needing factoring services have taken some tremendous hits over the last few years. We have seen industry declines in apparel, transportation, manufacturing, and staffing, to name a few. On the other side of the coin, we are seeing many new applications from technology, energy, security, and construction. No matter what side of the political spectrum you reside, the uptick in home values over the last few years has played a key role in our economy. By October 2013, home prices in twenty US cities rose by the most in more than seven years, indicating the real estate rebound will continue to bolster household wealth in 2014. So what does all of this have to do with asset based lending? The increased wealth is expected to cause individuals to buy more, which means companies will experience higher revenues and can potentially hire more workers. Our opinion has always been that companies experiencing growth will always need additional cash flow to fill new orders and keep up with customer demand.

Credit issues have many different faces, but we feel it generally falls back from the hangover of the great recession of 2009. So often, we are seeing applications where the owner or partners had experienced a recent bankruptcy and are trying to take a stab at the business again. This is where your due diligence procedures are worth their weight in gold. The key questions that need to be answered are not just when the company went down, but how and why it happened. Was the cause the poor management within the organization, a sudden decline in sales, or some other unforeseen occurrence? Here are some key steps every factor should take when evaluating a prospect:

–Run current credit reports on your prospect. There are numerous credit reporting agencies you can utilize that will provide as little or as much as your budget can afford.

–Gather the most current quarterly and year-end financial reports available. If the client has audited financial statements, read the auditor’s notes to the financial statements. Also, look for trends on both the balance sheet as well as the profit and loss.

–Request the last two years of business tax returns for both the federal and state returns, including payroll tax filing. If necessary, also request personal returns of the owner and/or majority shareholders.

–Check with the state where the business is domiciled to see if they are in “Good Standing.” If a business is not in “Good Standing” or is “Suspended”, it usually indicates they are delinquent with their annual reporting requirements, have not paid their taxes, or have some other form of dispute with the state.

–If the prospect is required to maintain a license to conduct his or her trade, check with local licensing board to see the license is current. If the license is suspended, you may not have a valid claim against the debtor in the event of a dispute.

–Run a UCC-1 search to see if there are any liens against the business. This is extremely important since you, as the factor, will always want to be in first position on all collateral. In some cases, there may be another UCC-1 financing statement already in place. This is not necessarily a negative indicator, as the prospect may have an existing loan with a bank or equipment financing with another lender. In some cases, the other secured party may subordinate their filing to allow you to be in first position on the prospect’s accounts receivable.

Account debtor quality varies depending on the industry. For us, the biggest challenge remains in the evaluation of privately held account debtors. Although credit reports furnish ample information, the quality is not as robust as what you will find with publicly traded companies. We’ve found that recent payment trends and DBTs (days behind terms) fluctuate even among the largest capitalized firms. If you have a hostile account debtor that is unwilling to work with a factor, think twice about moving forward with the prospect. First and most importantly, you will not have the ability to verify your clients’ invoices. For us, there is nothing more important than verifying your clients’ goods or services have been accepted and approved for payment. Without proper verification, you are basically gambling on an invoice, hoping that it will be paid.

A colleague of mine compared the due diligence process to putting together a puzzle that never gets fully completed. You try to get as many pieces of the puzzle to connect in order to form a clear enough picture to move on to the next step. In the race to get every deal funded, you will find many factors will try to slow the process for a very good reason. Unlike banks and other secured lenders, factors advance cash to qualified clients based on a piece of paper in the form of an invoice. Sure, the returns are high, and so is the risk. So next time the factoring company asks for some more information to get the prospect qualified, understand it’s not always the first one to finish the race that comes out the winner.

This article was written by our President, Don D’Ambrosio and was originally published in the January/February 2014 issue of The Commercial Factor.

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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Marketing the Right Way For Factoring Business

New clients, we all want them and we try everything in our power to find them. The internet along with social media has made it possible for almost anyone to get their message out to the masses at an extremely low cost. With an internet connection and a very small marketing budget you can create a web page, post content on Facebook, Linkedin, YouTube and a variety of other outlets depending on your specific need or preference.

Our position in the factoring business has always been to keep a lot of irons in the fire when it comes to marketing on the internet. As important as it is to have a great website, it is just as important to create useful content to educate our audience about what we do and how our services can benefit their business.

Unfortunately, the ease of marketing on the internet can be a double edged sword. How many of us come to work every day and are inundated with pages of junk emails that contain useless information that isn’t even pertinent to our businesses? I’m not just referring to spam mail but also all of the newsletters, links and requests for conference calls from people we never met and most likely will never do business. Sometimes I get multiple emails from the same sender saying they were following up on our previous conversation when I never responded to any of their previous emails.

Whatever happened to researching your target audience and crafting a message that connects your business to theirs?

I find it disappointing that many internet marketing strategies are centered on the old adage of throw as much stuff against the wall and see how much of it sticks. From this business owner I can tell you that many of my colleagues look at this strategy as lazy and ineffective at attempting to find new clients.

Obviously, if there was some universal marketing campaign that magically makes your phone ring, every business would be utilizing it today. Here are a few common sense tips we like to employ when trying to reach our targeted audience:

Drill down — So often in our industry I see new factors that create vanilla campaigns that do not target a specific audience. For example, instead of targeting all of the transportation industry and competing with larger, well established factors, drill down further and look for opportunities within the industry. Maybe you will want to focus on specific niches like dirt haulers, or owner operators. Then go a step further by narrowing down a territory that you can actively pursue new business.

Don’t be lazy — Potential new customers do not come in a one size fits all plan. To get them you are going to have to work hard to earn their business. Don’t just send a blanket email blast to a bunch of folks on a purchased list. In most cases they are going to delete it and ignore future attempts to communicate.

Make your marketing campaign have substance rather than taking the easy route. To quote Albert Einstein, “You have to learn the rules of the game. And then you have to play better than anyone else.”

This article was written by our president Don D’Ambrosio and originally published in Factoring Investor on March 25, 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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Peel Some Layers Before Funding Invoices

You’ve read the books, attended the training classes and finally have landed your first real prospect. They are eager to get started factoring their invoices and you can’t wait to get this deal closed. Whether you are working as a broker, business development officer or direct funder, this is the starting point where you will need to connect the dots to see if the deal will move forward or be declined.

What Is The Business Trying To Achieve By Funding Invoices?
Before the credit reports are generated, UCC-1 (s) filed, or any other piece of due diligence is started, it is really important for you to understand what the prospect is trying to achieve by obtaining your services. Sure, we all know the easy answer is that the applicant is looking for cash flow for their business. This is where you start to put the pieces of the puzzle together.

If the company is in a growth phase where they need additional cash flow to keep up with orders then it’s probably a good reason to move forward. However, temper this by looking at the company’s profit and operating margins. We have come across several companies that are growing but not making a profit because they have either expanded too quickly or agreed to produce a higher volume at too low a margin. Conversely, if a company is scaling back then you should know why they are taking this course of action. Is it because sales are declining or are they just tightening their belt as a result of being bloated from accelerated growth?

Peeling Back The Layers
We have found that no two deals are exactly alike even if they are producing goods or services within the same industry. For example, we have funded two clients in the apparel industry with the same customer. It was clear that the one client, who was labeled a “preferred vendor” with that customer, received preferential treatment with shorter payment terms and greater flexibility in getting the purchase order fulfilled. It’s almost equivalent to a person with a higher credit score getting a better rate on a mortgage loan than someone with less than perfect credit.

One of the biggest misconceptions about this industry is that factoring companies will fund almost anyone as long as their customers have good credit. Our position has always been a strong account debtor is a great starting point but not enough to close the deal on its own.

So often I see new factors getting in this business and do not take the time to really understand the entire picture of the factoring deal. This business is so much more than just checking boxes off on an underwriting list. Understand what your client does, the relationship they have with their customer and why they are utilizing factoring for their business. In the end both you and your client will be better off in the long run.

This article was written by our president Don D’Ambrosio and originally published in Factoring Investor on February 24, 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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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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Audio: Funding options that are working today.

Adam Lomax, our Executive Vice-President and COO, recently discussed funding options for growing businesses (both startup and established businesses). The link below is that conversation which provides a helpful overview of what is working today to fuel business growth.

A discussion about funding options with Adam Lomax on Dec. 4, 2013

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The Sales vs. Underwriting Dilemma

I’ve written a bunch of articles about what to look for when funding a new client. Whether it’s proper notification or having an ironclad factoring agreement, you should always have a consistent set of due diligence procedures that adequately protects your company in every factoring transaction.

With any new deal there will regularly be nuances that are unique and test the funder. In many cases getting past these roadblocks can make or break a deal.

With any factoring company, one of the biggest challenges is to scale the company for growth while keeping the proper safeguards in place.

The friction caused by this dilemma is usually felt by the sales and underwriting divisions within a company. Salespeople complain that the underwriters turn down too many applications while underwriting complains that sales wastes their time with prospects that will never fund.

An interesting dilemma indeed and truthfully there really isn’t one side that comes out on top in this battle. On one hand, if you fund every prospect that sales submits, it’s likely that you will get burned with a bad deal. On the other hand, if underwriting turns down every deal that comes through the door your sales will be nothing, making it difficult to keep your doors open. Our position has always been on the side of caution with the thought that no deal is better than a bad deal.

Here are a few examples where you should proceed with caution when factoring invoices:

Fast Funding
Every prospect wants to be funded immediately. This is not necessarily a red flag by any means however you should not compromise your standard operating procedures to accommodate an impatient prospect.

Confusing Financial Statements
If a prospect cannot provide you with audited financial statements always ask for tax returns. Tax returns are extremely valuable since you can use these to compare amounts to similar period financial statements. If the returns are older than one year, you should question why they are not current. Also, inconsistencies in the financial statements such as large swings in revenues or expenses from prior periods should always be questioned.

Uncooperative Account Debtor
If you have a hostile account debtor that is unwilling to work with a factor think twice about moving forward with the prospect. First and most importantly, you will not have the ability to verify your clients’ invoices. For us, there is nothing more important than verifying your clients’ goods or services have been accepted and approved for payment. Without proper verification, you are basically gambling on an invoice hoping that it will be paid.

Tax Liens and Judgments
One of the first pieces of due diligence every factor performs is a credit check of both the client and account debtor. Obviously, every factor knows to stay clear of any clients with open tax liens that have not been addressed by either a payment plan or some future intent to pay. We would take that one step further by staying clear of any company that consistently fails to pay their taxes in a timely manner.

What makes the factoring industry unique is that every factoring company has its own set of policies and procedures for funding new prospects. What may be overkill for one factor may be acceptable for another depending on the situation. One of the main reasons why I truly enjoy working in this industry is the camaraderie among factoring companies. I cannot tell you how many times I have been able to call a colleague, asking them for their expertise with a specific client. Occasionally I am able to reciprocate with some insight from our end as well. At the end of the day we’re all trying to figure out ways to fund the good ones and stay clear of the bad ones while keeping salespeople and underwriters in a happy place. This is easier said than done for sure.

This article was written by our president Don D’Ambrosio and originally published in Factoring Investor on October 21 2013.

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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Making Your Work Matter

While reading through some news feeds the other day I came across a Gallup Poll that found over 70% of workers dislike and are disengaged from their jobs. The main reason behind the discontent includes poor management and bosses who ignore talent and do not cultivate growth.

In some way this surprises me and in other ways it does not. Let me explain. I have been fortunate enough to have a career where I’ve worked at just a handful of jobs over extended periods of time. My career started as an intern working in the accounting department of a small business, a chief financial officer of a publicly traded corporation and presently to being the president of my own company. During that period of time I’ve worked for some good people, some not so good and many in between.

The biggest problem with many companies is that they promote the wrong people to manage within their companies. It’s not that the mangers are not qualified in terms of knowledge, as a matter of fact it’s usually the reason why they were promoted. For example, the best sales person gets promoted to manager when they do not have a clue on how to manage a group of people. They are great subject matter experts but poor at motivating and cultivating growth within their groups. The funny part is that it’s not their fault. Many businesses do not have a formal management training program so new managers just wing it as they go. Usually managers come in one of three forms:

The Dictator – They usually manage by fear and are usually the worst type of manager. Employees are seldom asked for their opinions and are generally treated as a means to an end to get the job done. Motivation is usually very low since each person feels as if they have no input other than doing their assigned tasks.

The Working Manager – They usually are easier to work with than a Dictator but generally do just that – work. They are so busy with their day to day job that they never meet with their team other than to make sure they complete their tasks. I found that a large portion of managers fit in this category.

The Delegator – just the opposite of the Working Manager. This person generally has figured out the system where they parse out their work and take all the credit for its completion.

Early in my career I was promoted as a manager for a very small department which consisted of three people that reported directly to me. The work was pretty standard and I was finding that my group pretty much had the system down to a science allowing them to meet their monthly deadlines without even breaking a sweat. It was great to have such an efficient team but I felt they had the potential to go beyond their daily routines. More importantly, this would be a great opportunity to motivate my team and allow them to excel going beyond their normal scope of work. Yep, that was the thinking of some young kid manager looking to change the world in a day. Unfortunately, my small team did not share my enthusiasm. Understandably, most people don’t get excited at the prospect of doing more work especially if the sole purpose is to expand their horizons. Let’s face it most people prefer having a routine that is familiar and comfortable.

So what would be the best way to motivate my group?

Obviously, the easy answer would be monetary rewards in the form of a bonus for each person that goes above some specific goal on a consistent basis. Contrary to popular demand money is not the overall motivator of workers no matter what level they have attained in a company. If you dislike your job the majority of your life is spent in misery. Think about it, a typical full time employee spends close to fifty hours a week if you include your morning prep time, commute and lunch. That’s a lot of time being somewhere you don’t want to be if you hate your job. Bonuses and raises are essential and should be given when earned. However, I have learned from experience that the euphoria from a raise or bonus is usually short term and eventually levels off pretty quickly.

By having such a small group reporting to me it gave me a little more time to meet with each one to see what they wanted from their careers at the company. Although it was not my intention, I practically scared the heck of them by requesting individual meetings about their work flow. In retrospect I could have handled that differently and been a little less formal. After the meetings were completed I was not surprised by my findings. Each person generally delivered their expected quota of work – nothing more, nothing less. When asked if they were fulfilled by their position I received the standard response that it was a nice job and they really liked the people in the office. I took it one step further by asking what would really make them feel enthusiastic about coming to work every day. The responses surprised me. They wanted their work to matter. Not just the daily routine of recording, disbursing and preparing financial statements. For example, one staff accountant who had been with the company for over nine years never sat in on the audit meetings with the CPAs. He always prepared the items on pre-audit checklists but never knew what the final outcome was once the audit was completed. My meeting with the accounts payable clerk was just as informative. It turns out that she had a bachelor’s degree in accounting but took the first job she could find since her family was struggling financially. She too had been with the company for several years and never inquired about an opening for an accounting position.

Having this newly acquired information I took action immediately. First, not only did I invite my staff accountant to the meeting, I let him arrange it and give me an agenda of what topics he thought we should cover that day. I also told him that he would be acting as the liaison between management and the audit team. I assured him that I would support him in every way so he didn’t feel like he was being thrown to the wolves. As I expected, he took the ball and ran with it. He was in control and felt empowered. He never said it but you could see the expression in his face every time he met with me on a status report. As for my accounts payable person, I asked the manager of the financial planning group if his team would let her assist them with some month end analysis. They were open to it and she quickly picked up the system for month end budgeting. As a matter of fact, she did so well that she eventually transferred over to the budgeting and planning team permanently. I always feel that if you can heighten someone’s career even if it means losing them, you’ve done your job as a manger.

Trying to motivate and empower your team has its fair share of defeats along with the victories. Don’t settle, break the routines and most importantly, make their work matter.

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Why Factoring Works

Working capital-Every business needs it but at what cost?

One of the main reasons why I enjoy working in the factoring business is that the concept is simple and easy to understand.

Factoring companies provide businesses with working capital by purchasing their client’s outstanding receivables.

Typically a factoring transaction is an arrangement between three parties (client, factor and vendor) all of whom are businesses. The business owner understands his profit margins and the expense associated with factoring while the factor evaluates the risk. In most cases the increase in cash flow will not only justify the cost but actually lower operating margins by increasing sales for the business.

But why is factoring so popular now?

There are several answers to this question but it basically comes down to qualifying for the capital. Banks make decisions based on business financial history, cash flow and collateral. Factoring decisions are largely based on the creditworthiness of the client’s customer. However, factors do perform extensive due diligence on the client as well. For more on this topic see our June 2011 article, “Factoring: Is it Always About the Account Debtor?”

Many of our clients fit into the category of small to mid-sized businesses that are in a growth mode but do not qualify for a traditional bank loan. Usually the client has been in business for an insufficient amount of time or they do not have enough collateral to secure a loan. In other cases some factoring clients will qualify for a loan however the amount is not sufficient to meet their cash flow needs. We feel that if we can help our clients grow to the point where they can raise additional capital then we have fulfilled a much needed void.

Another reason why factoring is so popular is the added value invoice factoring companies provide to their clients besides the traditional funding of invoices. Mostly all factoring companies utilize some type of specialized factoring software that allows their clients to track the aging of their outstanding invoices, accrued fees, receipts and so forth. Also, most factoring software packages allow the client to run a myriad of accounting and financial reports to compliment their accounting practices. By creating a transparent environment between the client and factor it allows both parties to be on the same page and proactive with account debtors.

Also, invoice factoring relies heavily on credit evaluations on both the client and customer. Once the client has passed the appropriate credit checks, they should also be informed about the creditworthiness of their customers. Before we begin factoring any of our client’s customers we always perform a thorough credit analysis. If one of our client’s customers has been declined for our factoring services our client usually follows our lead and will not do business with them. Think about that benefit. As a client you are receiving a full credit analysis from an underwriting team that is helping you to make important decisions about potential customers.

Partnering with the right factoring company can provide huge added benefits for any business looking to get to the next level. Remember, it’s not just about money.

This article was written by our president Don D’Ambrosio and originally published in Factoring Investor on July 14, 2013.

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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Is Invoice Factoring Right for All Businesses?

So many authors, including myself, have written about the benefits of invoice factoring explaining how we help businesses in need of working capital.

Just type something like, “benefits of invoice factoring” into your favorite search engine and you will find pages of articles telling you how factoring works and why it is the best solution for your business.

As the owner of a factoring company I can definitely say that factoring is an extremely useful tool to help businesses grow by unlocking cash in the form of an account receivable.

But is factoring a one size fits all tool for all businesses to achieve growth?

As a featured speaker and panelist at small business workshops over the last several years, I’m fortunate to be given the opportunity to speak directly to business owners. Typically, when presenting at these workshops I am joined by a traditional banker and a lending specialist from the Small Business Administration. As the person representing the factoring industry they usually give me the coveted title of “Alternative Lender”.

Solutions from an “Alternative Lender”

We are each given approximately thirty to forty-five minutes to present to the group on how our industry can help them with their business challenges. When it comes time for me to present I explain that factors are not lenders but rather purchasers of invoices.

It can be confusing since many factors charge on a time based fee and in the case of recourse factors the invoice is required to be repurchased after a certain amount of days outstanding.

The factoring challenges with slow paying customers.
One of the first comments I usually get from business owners is that they are interested in factoring but would only like to fund their customers who are slow payers. I always caution that factoring companies are not collection agencies and most prefer to stay away from slow paying customers for several reasons.

Let’s assume your client has just given you a $10,000 invoice with one of her slow payers.

For simplicity purposes we will assume the factor has advanced 90% and will be charging a 3% fee for every thirty days outstanding.

We will also assume that the payer of the invoice usually takes 120 days to pay.

So let’s do the math-you as the factor have advanced 90% on $10,000 leaving you with a $1,000 reserve. If the invoice has gone 120 days outstanding that equates to a $1,200 fee (10,000 x 3% x 4).

If you only have $1,000 in reserve and are owed $1,200 then you are upside down by $200 on this transaction.

There are remedies in a situation like this such as withholding advances on future invoices or deducting rebates from other invoices. Another possible solution can be to lower the advance allowing for a larger reserve on future invoices.

However, our position for slow paying account debtors has always been to question why it takes them so long to pay.

Is the payer so financially unstable that they need to hold on to their own cash?

Is the problem with your client where they are not property billing even though the invoices were verified?

It’s kind of ironic that experience has taught us that some of the most financially sound corporations are notorious slow payers. With large companies there is usually a myriad of red tape they need to go through to get a payment approved. Fortunately many of these larger payers now utilize online account payable systems where we have the ability to simply log into the system, see the approval and date the invoice will be paid.

Another case where factoring does not work is when the client refuses to allow you any contact with his customer.

I look at this situation as more of a common objection. For all of you new factors I highly recommend that you get a signed notice of assignment which includes signatures from both the client and the account debtor.

A “Notice of Assignment” is generally a written instruction to the client’s customer that the client’s accounts receivable have been assigned and is payable to the factor. This is an extremely important document for factoring companies. This document protects the factoring company in the event a payment is accidentally sent to the client instead of the factor.

Even if the client skips off with your money, this document ensures you are still owed the funds from the client’s customer. Hopefully, you will never have to enforce this notice but it is imperative you have it as part of your requirements before funding. For further reading on this subject see our April 16th, 2012 article, “The Factoring Business Notice of Assignment-Never Fund Without It”.

Also, another thought to keep in mind is how will you verify your client’s invoices if you have no contact with the payer? Sure, you can skip some steps and do what some people in the industry call non-notification factoring. For our money that is out on the street, we prefer to take every step that helps to minimize the risk in any way.

These are just a few examples where I feel certain situations are not the right fit for factoring. At many of our workshops the business owners cannot factor with us simply due to the fact they are new and haven’t invoiced any clients. At this point I tell them to be proactive and always try to remain one step ahead of the game in managing their business.

Now if I can only figure out a way for them to give me a cooler title than “Alternative Lender”.

This article was written by our president Don D’Ambrosio and originally published in Factoring Investor on June 17, 2013.

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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Asking the Right Factoring Questions

Everybody has an opinion as to how factoring works and the best method to fund deals. Many of the articles I’ve written in the past try to assist the broker and factor from both the sales and operational side of the equation.

Is there a magic formula to use to get more deals closed? We all know there is no secret that will land you more deals, but positioning yourself, asking the right questions and using common sense will sure go a long way.

Unlike a traditional bank loan which requires collateral as security, factoring typically involves advancing funds through the purchase of an invoice. The invoice is an instrument that represents a promise from one party to pay another for delivered goods or services.

No risk at all associated with buying a promise, right?
The Factor must thoroughly perform the necessary due diligence to ensure the deal is legitimate. For new brokers and factors getting started in the business it is important to understand that no two deals are exactly alike even if they are in the same industry. It is our job as both funders and brokers to peel back the layers of correspondence to get to the heart of the deal.

So where do you start?

First, what is the prospect’s motivation for invoice factoring?
Is the company expanding their operations or are they looking for a lifeline to stay above water? For us, we have always found that the shortest distance between two points is a straight line. Therefore we immediately engage with the prospect’s owners and management team to get a forward forecast of the company.

Once you have the big picture view, your next job should be to focus on past performance which leads us to our second point. Try to get as much pertinent information about your client as possible. Your client should be able to gather tax returns, financial statements (audited if possible), current and historical accounts receivable aging reports, agreements, etc. As a former CFO of a publicly traded company, I know that numbers may not give you the entire story but they surely will give you a lot of chapters in the prospect’s book.

In some instances you will run across prospects that have been in business for less than a year. In this example you will not have a tax return, some interim financial statements and very light account receivable history reports. These deals will require you to think out of the box. Always examine the prospect’s experience in his or her current industry.

If someone has just started an apparel company but worked their entire life in the mortgage industry, you might want to give it a closer look. Your next move should be to look at the quality of the account debtor and their current contracts for goods and services. Experience has taught us that new companies who win contracts with A+ account debtors frequently have excellent prior experience in the industry.

Finally, use common sense.
We like to refer to our red flag rule. You might be able to get away with a blemish here or there but if the flags are waving like a speed car race, you have a problem. Red flags can range anywhere from omitting pertinent information on the application to excessive liens and delinquencies on a credit report. The good news is that you will find most prospects to be honest and trustworthy when trying to get funded on invoices.

Remember, read a prospect’s entire book before you move forward on a deal otherwise yours might be a very short story.

This article was written by our president Don D’Ambrosio and originally published in Factoring Investor on May 13, 2013.

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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