Accounts receivable factoring companies and most lenders in general are risk adverse. This means the factor is always considering how a purchase might go bad. Since the funding is based on the ability to collect on the invoice, anything at all that might go wrong is taken into consideration. For this reason a very thorough and deliberate process is in place to mitigate the potential problems that may arise when an invoice has been factored.
While our money is out on the street what potential scenarios could possibly occur that would prevent payment of the outstanding payment? It might seemed outlandish, but by taking these risks into consideration and possibly making preventative measures to alleviate the risk – it helps us sleep at night!
It may seem overly conservative or cautionary at times, but the factoring company has time and experience on their side to show that accounts receivable financing, done right, is a very safe way to leverage an asset.
The bottom line is, we owe it to our entire portfolio of clients who rely on our ability to fund to insure that we are doing everything possible to protect our ability to fund. Seeing comprehensive, tight due diligence in the financing process should telegraph to you that the factoring company is doing their best effort to make sure you have the working capital when you need it.