Sometimes we get a call from a prospective client who says “my CPA suggested we check out factoring our invoices but we don’t want our customers to know about it.” Well factoring companies field calls all day from companies looking for funding. Many have to be turned down for various reasons. If your company qualifies for commercial financing, that’s a good thing. It shows that your business is mature enough to be approved by an outside source of capital, which is a strong statement in any emerging growth development.
Here’s what you need to know going in, when a borrower enters into an agreement to receive advances on their invoices, they are essentially selling the rights to those invoices to a third party (the factor.) Now the factoring company owns the invoice as an asset against the money we just wired into your bank account. It’s essential your customer is legally contacted and notified that the proceeds of the completed invoice have been assigned. Probably the single most critical part of factoring invoices is that the account debtor pays the factor directly. The check always must come to our lockbox. There’s no sneakiness tolerated in a proper commercial finance transaction.
So the notion that “we don’t want our customers to know,” is a non-starter. It is a perception issue where people unaware of factoring think there is a stigma attached to having a finance company source the working capital needed to insure growth.