Some businesses, usually in the manufacturing industry, use a sales intermediary to do business development. Because the factoring company relies on the creditworthiness of the account debtor, or customer, this may present problems. For example, the end user may be a large corporate conglomerate but the sales company is a small independent firm. The sales rep company needs to protect their relationship with the large corporation so they want the payment for the product to go through their company. Unfortunately factoring companies need direct access to creditworthy accounts.
A factor must have a legal right to the proceeds from the sale. In any situation the customers’ credit will be called into question. Any business, whether utilizing factoring or not, should be determining the credit availability of a company that owes them money. This often is not the case, and companies routinely offer large credit terms to a business that should not qualify for credit.
So having a sales rep handling your business development can be an impediment to financing invoices if the money flows through the sales rep entity. There are work-arounds, but be aware that when a factoring company makes an advance on an invoice, it’s not the end user who is the account debtor, it’s actually the company that writes the check for payment.