Factoring For the Tortoise and the Hare

How often have you heard the catch phrases, “Same day funding”, or “Invoices funded in 24 hours or less”?

Whether you work in the factoring industry as a direct funder or consultant, we all know that quality customer service is a cornerstone for any company’s long term success. Lately however, it seems that customer service is measured more on speed than any other factor.

Factoring Company Due Diligence vs. The Need for Speed

As important as speedy funding is to the customer, thorough due diligence is even more important to the funder. So often we receive calls from brokers and prospects requesting funding in a day or so to meet payroll or pay a supplier.

Sound familiar?

As much as we would like to fund every prospect that comes to our company, there are several extremely important questions that every factoring company should ask early in the due diligence process:

• How long has the client been in business?

• Can they provide current financial statements and tax returns?

• Are there any UCC-1 financing statements in first position on the client?

• What is the credit history of both the client and account debtor?

• How is the client’s company organized?

• Can the client provide an aged invoice schedule for the customers they would like to factor?

These are just a few samples from our company’s due diligence checklist. Depending on the type of industry being factored, a factoring company’s checklist may vary.

Our experience on gathering these types of documents can range anywhere from two days to a few months. Much of the process is dependent on the willingness of both the client and account debtor to provide the information requested in a timely and presentable manner.

Solving the Factoring Puzzle

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 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.

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 at www.oxygenfunding.com