Routines Aren’t Always Good For Factoring

In the factoring business routines are common, but are they always positive?  Avoid complacency. Learn 3 key invoice factoring strategies to implement post funding.

Whether at work or in our personal lives routines seem a part of our daily existence. We wake up at a certain hour, shop on a particular day and so on.

In our daily workday we usually have a set of routines as well. We get to the office at a certain hour then perform certain tasks in the morning while working on others later in the day. Many of us get into a habit of doing things a certain way which is predicable and comfortable. Having audited many companies in my lifetime I cannot tell you how many times I asked a question about a procedure with the response, “That’s the way we’ve always done it”.

In the factoring business routines are also a part of our workday. Whether it’s advancing funds on new invoices, applying cash receipts or underwriting new business, each process usually has a specific set of procedures attached to it.

Once a factoring deal makes it past the due diligence stage to the actual funding of invoices, the process is pretty straightforward. Usually, the client sends invoices for approval, the factor verifies with the account debtor and sends a schedule back to the client for the negotiated advance. On the other side of the transaction, receipts are applied to the clients account as they are received and rebates are released accordingly. Obviously factoring procedures may vary depending on the type of transaction and the industry being factored.

Experience has taught us that we are most vulnerable when we are lulled into doing things a certain way.

What exactly do I mean by this and how does it apply to the factoring business?

So often when we are in this cycle of advancing and collecting we become complacent thinking that nothing can go wrong and break the wonderful factoring routine. Unfortunately, this is not always the case. A factoring colleague of mine who has been in the business for over twenty years told me that most clients don’t try to purposely fraud the factor, either their personal lives or business experience lead to some type of negative event and we as the funders bear the burden with them.

What makes matters worse is that by the time many factors find out about a problem it’s usually too late. For example, if the client has invoices with forty-five or sixty day terms and the government has enforced a levy for overdue taxes the factor may fund another schedule or two before they realize the problem exists. Although there is no foolproof method to predict every negative event before it happens there are several key procedures you can build in as part of your post funding process.

3 Key Invoice Factoring Strategies To Implement Post Funding

Frequently Monitor Credit On Both Your Clients and Account Debtors

This may cost a few extra pennies but is well worth the cost. A downturn in a company’s credit rating is usually an indicator of problems on the horizon. We try not to just focus on the score but research the full credit report to see what is causing the decline. Conversely, you may find the credit has become more favorable which may allow you to extend better terms to your client. Check with your credit provider since most will provide some type of monitoring service.

Lien Searches

Although most factors require a first position through a UCC-1 filing it is still wise to know of any individual or company placing liens on your client even if they are in second position. If you already have a credit monitoring facility in place it may contain this information as well. There are separate companies that specifically monitor liens as well as perform searches that reflect for recently placed UCC filings.

Tax Searches

Always be aware of an impending garnishment or levy against your client from the Internal Revenue Service. These need to be dealt with immediately as it puts the factoring company in jeopardy of collecting any outstanding funds owed to them. One quick remedy is to file IRS form 8821. Form 8821 is used to authorize any individual, corporation, firm, organization or partnership designated by your client to inspect and receive confidential information sent by the IRS.

These are just a few suggestions that we encourage you to use as part of your post funding procedures. There are a myriad of additional choices you can employ depending on your budget and risk tolerance. At the end of the day, keep your guard up and stay ahead of the game.

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

About Don DAmbrosio

Don D'Ambrosio assists companies with cash flow needs through invoice factoring services. You can connect with Don online through the Oxygen Funding website, LinkedIn or Google+

Comments

  1. Great article! I truly believe that following the status quo is a recipe for failure. The constant drive to fix what isn’t necessarily broken is how companies stay ahead of competition. There’s always an up-and-coming company looking to knock off the big guys. In my case, Masslogics is the aggressive start-up, and were starting a revolution in helping carriers with their TMS that even helps factors run better, faster & stronger.

  2. Great article. So many people do exactly as Don addressed. I used to work in the compliance department of HSBC Bank. I audited branches in many states and heard the same comment of “that’s how we’ve always done it” so many times. I just found this site and I love it. I truly hope you keep it going as I am just getting started in Factoring, Asset Based Lending and Merchant Cash Advances. If you have anything on those, please email me Tracy. Thanks!

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