|Here are some tips to make your relationship with your Factoring provider a mutually beneficial relationship…|
|Like any lender, be it a banker, a mortgage loan officer, or a private investor, a Factor wants to feel that he or she is making a sound investment, or better yet, making a safe bet, on you and your business. Here are a few tips that will help you build a strong relationship that will benefit you for years to come.|
| Some Background is important to note. Factoring is an industry that is often a victim of fraud. Because a few people are not always honest and don’t always act with good intention, the factoring industry is very in tune with looking for fraud and in fact is always suspect of it. If you ever feel you are being questioned in a way that may insult your character, do not take it personally. A few bad apples over the years have made it so that the factoring industry must be cautious before just arbitrarily advancing money for just any invoice that comes along. Once you build a rapport with your factor, this feeling of a presumption of guilt will ease. Until then just provide ample and sufficient backup and documentation for your invoices and don’t worry about anything if your invoice is legitimate and due.
|1. DISCLOSURE :
Always disclose everything to your Factor. Even the things you may not think will surface, or facts that may be difficult to explain, such as a recent decline in profits or internal issues within the business. Candor is invaluable to a factor. If they feel there is something being hidden, because of the nature of the business, and its propensity for fraud, they will back away quickly.
|2. PAYMENTS :
A Factors collateral for extending you an advance on an invoice is the payment that your customer will make for the invoice. The Factor will ask you when they factor the invoice to have the customer remit payment to you at the Factors address, often called a lock-box. If by some chance payment should slip through and be mailed or electronically deposited to you, you are required in the Factoring Security Agreement (the contract that spells out who is to do what between the parties) to immediately forward any factored proceeds (payments from customers that are for factored invoices) to the Factor for credit against the invoice. Failing to do this is, and do it immediately, is one of the biggest mistakes some clients make. When this is not done as specified, it is perceived as an attempt to defraud the Factor. The Factor has already given you between 80-90% of the money up front. Now you would have 180-190% of the money. This “double dipping” is both a violation of the agreement between the parties, but in almost all states is a criminal act of fraud by conversion.
|3. SLOW OR LATE PAYERS :
The Factor hopes that your customers will pay in the time that you have allotted. Be that Net 30, Net 60, etc. When a customer goes beyond this, it begins to raise concerns on part of the Factor. Why are they late? Is it because this invoice is fraudulent? Did something change in the relationship? Were the goods not delivered as specified? Etc. Etc. When you have slow or late payers, stay on top of them. Know WHY they are late. Document it. Report those findings to your account manager with the Factor as soon as you do. By being proactive and knowing when customers are late, and why, you demonstrate to the Factor that you are on top of it and they do not need to get involved. Most Good Factors will not intervene in your collections efforts, but they can, if you don’t handle it.
|If you follow these simple rules, you will build a great relationship with your Factor. A Relationship of mutual trust that will be there to help you when anomalies or unique situations arise.|