Credit Decisions

The function of invoice factoring is to provide funds through the advances on creditworthy accounts receivable. The operative element here is the creditworthiness of the account debtors. Increasingly the credit decision making regarding credit availability is becoming a key function of the viability of a long term successful factoring operation. For the most part all factoring companies look at credit the same way. Those that stray from practiced procedures inevitably get caught in arrears. Risk analysis based on statistical outcomes can be, over time, a critical component that allows factoring to continue to be a useful financial tool. The proper implementation of credit decision making goes beyond a particular invoice or customer. If a factoring company is playing loose with their credit rules it can, and does, have a detrimental effect on the overall well being of the whole portfolio. When a factoring company suffers a substantial loss it can affect all the clients who unknowingly are expecting critical funding. Therefore conservative credit limits should be a sign that the factoring company is cognizant of their responsibility to the entire client base, not a stubbornness to hold back funding. Ultimately the invoice factoring company pays the price for bad credit decisions.