When you Factor Invoices, Be Ready to Give Up Title

A few years ago, I was contacted by a local printing firm. They had been in existence for many years and were well-known in the community. That year, they had been experiencing impressive growth with many of their large commercial accounts. They needed working capital to support the growth and their bank would not loan them the amount they needed. (You know how banks are).

It was a family-owned business and I worked with the Son of the original owner. The Father was still active in the business, but mainly dealt with the larger customers and allowed his Son to run the administrative areas. I explained the factoring concept to him (including the fact that it is a lot more expensive than bank financing). He was happy to know that his ability to generate working capital from invoice factoring was only limited by the company's pool of receivables. He filled out an application and submitted the other information required.

When I got the quiote back from the funding source, I set up a meeting with both the Father and the Son to go over the LOI. They were fine with the fee structure, advance rate, and other points in the agreement. But when the Father noticed that the factoring company would be filinig a blanket UCC on the receivables, he got angry and said there's no way he would do this. That was the end of this deal.

I don't know what he was thinking. If he ran a factoring company, wouldn't he want some type of protection for the money you've outlayed to companies? Unless you're willing to encumber your accounts receivable, you should not consider factoring (or most any other type of outside financing). There will ALWAYS be a UCC filed on the A/R.
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Need a free factoring quote? Click here to apply.
Kent Harlan, CPA
Ozarks Capital Funding, LLC
www.ocflink.com
kenth@ocflink.com
417.849.7394

A Broker can be Helpful in Choosing the Right Invoice Factoring Company

Many people cringe when they hear the word "broker". A common stereotype is that a financial services broker is strictly out for himself and will choose the funding source that pays the highest commissions, as opposed to matching the factoring company that can best serve the client. There are many brokers like that, but I believe they are in the minority.

I'm not ashamed of being a broker because my first priority is the satisfaction of the client. If I don't think factoring is a viable financing tool for a given situation, I will make that clear to the client. I will give them alternative ideas if available and thank them for giving me the opportunity to try to help them. I work with funding sources that I can implicitly trust and that have a track record of reliability and honesty.

A company does not pay extra fees for using a broker for setting up a factoring arrangement. That's because the commissions paid to the broker are paid by the factoring company as an expense. A broker like myself can be invaluable in bringing together companies and sources of capital that work well together.

Need factoring? Click here to apply!

Kent Harlan, CPA
www.ocflink.com
kenth@ocflink.com
417.849.7394

Recourse vs. Non-Recourse Factoring

When you are thinking about entering into a factoring relationship, one important consideration is the whether to utilize a recourse or non-recourse factoring company. It is important to understand the difference as it relates to non payments from your customers. In a non-recourse situation, the factoring company takes the loss from bad debts. With a recourse factor, you must either reimburse the company for the advance or replace it with another invoice of similar amount.

Not only can the type of factoring arrangement have a profound impact on the rate you pay, it can also effect the way you do business. One client spent a lot of time setting up a line with a well-established non-recourse factoring company only to find out that the terms of the contract made it very difficult for the customers to make product returns. Had he gone through with this relationship, it likely would have disrupted his business and alienated customers.

Just like any contract, make sure you clearly understand the terms on the front end before signing on the bottom line.

Need working capital from invoice factoring? Click here to apply.

Kent Harlan, CPA
Ozarks Capital Funding, LLC
www.ocflink.com
417.849.7394
kenth@ocflink.com

Checking Your Company's Background

I was approached by a potential factoring client a few years ago that seemed motivated to grow his business. He owned a commercial printing company that was growing rapidly. The bank he used wasn't helpful in providing the additional working capital he desperately needed.

The company was close to where I live, so I met the owner in person. After getting some basic information, I started asking some pointed questions about the business and asked if he had a recent financial statement. His demeanor changed on the spot, as he became defensive and uncooperative.

I wasn't giving him the "third degree". I was merely trying to establish if his company would be a good fit for the factoring company I represent. I like to do this up front before a lot of time is invested in processing the application.

It's important for there to be a level of trust on both sides. We're there to provide a valuable service for our clients. It's important for us to find out relevant information on the front end to make sure we can provide an excellent level of service.
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Need working capital? Click here to apply.

Kent Harlan, CPA
Ozarks Capital Funding, LLC
www.ocflink.com
417.849.7394
kenth@ocflink.com

Why Medical Receivables Factoring is More Challenging

Those who are unfamiliar with the nuts and bolts of factoring may think that getting funding for medical receivables is just as easy as that of a distributor or manufacturing company. Nothing could be further from the truth.

There are a limited amount of factors that fund medical receivables because it can be very risky for them. It takes a company who is very familiar with the complexities of medical billing. They must be able to accurately project the net collectible billing percentage to be applied to each invoice. An audit of the historical third-party receivables is conducted before the contract is signed. This can be fairly expensive (up to $5,000 for a small practice), so it's important that the provider be committed to factoring before the audit is conducted.

The audit allows the factor to determine the percentage of discount off the bill. The advance rate is applied to the predetermined net collectible billing. As you can see, this type of factoring is much more complicated than for most businesses.

Need working capital? Call me at 417.849.7394
Kent Harlan, CPA
Ozarks Capital Funding, LLC
www.ocflink.com
kenth@ocflink.com

How Invoice Factoring can Fuel a Company's Growth

When a company is growing at a rapid rate, additional working capital is usually needed to pay for materials, labor, and additional overhead. Relying on internally generated funds probably won't suffice, especially if customers are paying on credit. If the average customer pays in 45 days and vendors expect payment in 30 days, a cash shortfall is created. The same is true for production employees who get paid weekly. They certainly would have a problem if they had to wait until customers paid their bills.

Accounts receivable factoring is an ideal way to provide funding for companies on the "fast track". When an invoice is generated, the factoring company will advance between 70% and 85% of the face amount up front. The remainder, called the reserve, is remitted back to the client upon collection less factoring fees. Unlike a bank line of credit, the amount of funding is limited o only by the pool of receivables. The advance enables the company to pay for the labor and might even give them the opportunity to take advantage of purchase discounts on materials.

Need working capital? Click here for a free quote.

Kent Harlan, CPA
Ozarks Capital Funding, LLC
www.ocflink.com
kenth@ocflink.com
417.849.7394

Read the Fine Print on Factoring Contracts

Most factoring companies are ethical and honest. But there are some out there that will take advantage of you. Therefore, you or your attorney should read the contract very carefully before signing on the dotted line. In looking for working capital, you might fill out more than one application in order to get the best "deal". In one scenario, a customer inadvertently pledged his companies receivables by simply signing the application. Then, when he chose another factor to work with, due diligence disclosed that there was a lien on the A/R from the other factoring company. Although it was cleared up, it caused a delay in funding.

My funding sources are all above board and do not add ridiculous clauses like that to their contracts. If you are wanting to establish a factoring relationship with a trustworthy and reputable factoring company, click here for a free quote.

Kent Harlan, CPA
Ozarks Capital Funding, LLC
www.ocflink.com
kenth@ocflink.com
417.849.7394