Why Your Customer's Good Credit is Essential for Factoring

You'd have to be living in total isolation to not know the economy is in very shaky territory. I've been asked how the volitility in the credit markets has effected the invoice factoring industry. In particular, will those companies that factor have a smaller pool of funds available to them?
The answer in most cases is no. But it is important now more than ever that your customers credit position remain solid.

Most factoring companies get their funds from banks in the way of large credit lines. These lines allow factors to advance funds to clients. As credit has tightened, banks are scrutinizing their portfolios much more closely. Due diligence from the bank's perpective means they review the credit standing of the factoring client's customers. If the credit has slipped for several of the customers, the bank may pull in the reigns by limiting the amount of the bank line. As you can see, this scenario indirectly effects the amount of funds that may be available to factoring clients.

If you are currently factoring your receivables and are considering taking on a new customer that wants credit, you should take advantage of the free credit-screening services that most factoring companies offer. It not only will help reduce the amount of bad debt chargeoffs. It will also help you get maximum advances on your A/R.
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Kent Harlan, CPA
www.ocflink.com
kenth@ocflink.com
417.849.7394