Invoice factoring can be a valuable way to move your business forward and provide the working capital you need. You are putting one of your most valuable assets, accounts receivable, to work for you.
Although entering into a factoring arrangement is much simpler and less time-consuming than applying for a bank loan, you still would like to know up front if you're a good fit before the process begins.
Here are some of the questions that need to be answered in the screening process:
- Is your company's profit margin enough to cover the fees? As we've discussed before, factoring is not cheap financing, so it's important to have a decent profit margin to make it worthwhile.
- How much do you invoice each month? If you plan to factor less than $10,000 per month, your choice of funding companies will be limited. You should disclose your level of volume up front before you start the application process.
- Are you sure your receivables aren't currently being used as collatoral? A factoring company will insist upon having a first position on your receivables, so you should determine if your existing lenders haven't filed a UCC on your A/R. Don't be alarmed if the receivables pledged. Banks are often cooperative with factors.
- Do you do business with only one company? Factoring companies may have a concentration issue of you only have one customer. In that scenario, their risk is magnified because if something happens to that customer, they don't have other receivables to fall back on. It will help if the customer is large and stable.
- Does your accounting system generate aged receivable reports? 'This is critical, as factors depend upon accurate and timely aged receivable reports to determine if your company is a viable candidate.
Ozarks Capital Funding, LLC
www.ocflink.com
(417) 849-7394
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