How Bonding Impacts Factoring Relationships

When a company is providing goods or services to a government agency, they may be required to post a performance bond that is issued by a surety company. This is part of the contract and the purpose of this type of bond is to insure that labor and materials connected with the job are paid for. This type of situation can affect the factoring relationship in that the bonding company will have a position in the assets in the company. In fact, the position will supersede that of the factoring company. You might think this would kill the deal, but it usually doesn't. The bond issuer and the factoring company need to get their agreements in place to allow for invoice factoring. This isn't especially time consuming IF all parties understand the bonding situation from the beginning. If it comes up during the factor's due diligence review, it could slow the process down considerably.

Kent Harlan, CPA
Ozarks Capital Funding, LLC
www.ocflink.com
kenth@ocflink.com
(417) 849-7394





There are occasions where a company looking for accounts receivable factoring is working for a city or government agency that requires a payment or performance bond from a surety company. The bond is part of the contract that insures that labor and materials will be paid for the job. Primarily in construction related situations but it can crop up in any municipal contract. The factoring company needs to know about any bonding that you have in place. The bond issuer has a position on the assets of the company that supersedes the factoring arrangement. So the factoring company and the issuer need to get their agreements in place to allow for the invoice financing. It is usually not a problem but could eat up some time to pull together, letting everyone know right away if there is a bond will speed up the factoring process.