Ozarks Capital Funding

When a company decides to engage in an accounts receivable factoring relationship, the owner needs to understand that the transactions will be disclosed to the account debtor.   One of the steps in setting up the credit facility is the submission of a letter from the factor to each of the client’s credit customers alerting them that the factoring company has been engaged to manage the receivables of the client.  The letter also stipulates a change in the “mail to” address for future payments, which is usually a lock box controlled by the factoring company.

Another element of transparency when a firm chooses to factor invoices is the concept of verification.  Since the only collateral involved with factoring is the client’s receivables, factoring companies often perform a verification process to establish the validity of the invoices that have been submitted for advances.   Verification is accomplished in a variety of ways, including phone calls, letters, and electronic data files.

One of the fears that business owners have about getting involved in factoring receivables is the stigma that their customers will think they are in trouble.   That is an irrational concern, as many successful companies have utilized factoring at one time or another.   Should a customer inquire as to why the company is factoring, the best response is to tell them they have chosen this company to help them manage their receivables in a more efficient manner.

Check out our new e-book, “Accelerate Your Cash Flow With Invoice Factoring”.  Click here.