Over the years I have spoken to many investment bankers and software developers who have looked into using technology to automate the factoring process. They have found that parts of the factoring process can be automated, but the very nature of why a business owner would choose to use factoring and how exactly a factor sees the relationship makes it extremely difficult to automate.
Sure if the factoring transaction is plain vanilla with no wrinkles or variables it can be done. Very large organizations like UPS and Amazon are seeing that putting their money to work lending it to their customers and vendors has a great return. But the parameters and qualifications to use their money is not a one size fits all situations. Even some institutional banks have forms of invoice factoring departments who offer working capital through A/R advances, again the terms and conditions are fairly stringent.
There are plenty of small businesses who might have weak financial statements, past tax issues, bad FICO scores, and odd business models that can’t qualify for the plain vanilla types of factoring. Many of our clients have contracts that can change from one customer to the next. It’s the unfortunate reality of business today – the large customer makes the rules. So if you want to sell to a big customer you have to abide by their terms and conditions.
A good factoring shop is adept and going with the flow in these situations. We know how to figure out the best method to provide notification to the customer, verifying an invoice with the payables department of a huge conglomerate and reacting to problems when an invoice is unpaid. There is no computer code that can catch all the day to day audibles being called on a given play. Is the invoice we made an advance on properly secured? Has our client been up to date on their payroll taxes?
Factoring is a client leveraging the factors’ ability to borrow, and the factor using the invoices as short term collateral to pass that ability to borrow on. A service charge is involved and so getting good service should be in your interest.