You may not have thought about it this way, but you are now in the banking business. Even worse, you probably have the best rates in town.

If your customer went into the bank and asked to use money over time, the bank would set up a loan. The loan would certainly incur interest charges along with late fees for payments past due. Even the use of a credit card comes with financing charges when the balance isn’t paid in full each month.

So take a quick look at your accounts receivable aging report.  How many of your customers are asking you to provide financing – at no cost?

What is this costing YOU in terms of restricted cash flow, borrowed funds, and missed opportunities?  You are losing the use of that money while you wait for them to pay the invoice.

One solution is to implement procedures for collecting on accounts receivable along with penalties when invoices are paid late. This of course takes time and effort. Plus, it might leave you feeling like not only the bank but also the debt collection agency.

An increasing number of companies are factoring their account receivables as another solution. Rather than a last resort, businesses see factoring as a way to:

• Receive immediate cash on invoices, often within 24-48 hours
• Reduce bad debt by screening customers upfront using the factor’s credit risk analysis
• Automate the back-office functions including statement mailing and collections
• Encourage customers to pay more timely when they feel accountable to a third party factoring company

Often the services a factoring company provides as part of their standard operations will save a business as much or more than the factoring fees themselves. More importantly, a business has immediate access to cash. After all, a sale actually counts when the money is collected.

I just received a large order from a local company – should I take it?

This is what I call the ‘ship and hope” syndrome. In other words, fulfill an order; ship the product and ‘HOPE” to get paid.

In today’s economy, not knowing the credit (payment history) of your clients is a recipe for disaster.  Unfortunately, I would estimate that over 90% of the businesses  we work with failed to have the proper credit review procedures in place before funding invoices with us.  

As a factor, we are constantly monitoring the credit strength of what we call the debtor (the entity making payments on the invoices). Due to the large volume of invoice payments received, we use a number of credit reporting agencies as well as credit insurance companies to help us in making funding decisions.

By virtue of being a Millennium client, our clients have access to highly sophisticated credit reports, information that would be unattainable on their own.   Whenever a client is in receipt of an order from a ‘new” customer, they simply fax over a copy of the purchase order (or like) to their account executive and within a short period of time, a complete credit history will be provided along with an approved funding limit (or declination) from Millennium.

‘It is better to have never shipped at all than to have shipped and never been paid!”

Please be sure to inform your prospects that factoring is not only a solution to their working capital and cash flow needs, but also a way to make solid credit decisions in the future.

Timothy J. Sardinia  - Mr. Sardinia is currently a Partner with Canfield Capital Management, LLC, a Member of Steelkilt, LLC, a Member of Millennium Automotive Group, a Member of Millennium Legal Funding.  Tim can be reached at  tim@millenniumfunding.com or by calling  716-204-4800.