This is my favorite question and one that I have been asked a thousand times. I hate to think about the business owners who were afraid to Factor and never asked me that question. Did they give away big chunks of their business? Did they go out of business? Did they take on an “easy loan” from a Fintech lender? If only they had asked and listened, they could have saved themselves a lot of time, grief, and money.
Every business today must be ready to accept credit card payments as we head towards a cashless society. Each time they do so they will be Factoring. Industries like apparel have been Factoring for hundreds of years and Transportation is catching up. In the rest of the world Factoring is common practice in all industries and it is just beginning to happen here in North America as well.
As in most things, good communication is the key to success and when it comes to Factoring it is even more so. In the case of a credit card, it is common knowledge that the credit card company will pay the business, and the customer will pay the credit card company. In the case of a B2B transaction this is explained through Notification. A process that business owners are well advised to understand and become involved in.
There are several ways to deal with Notification depending on the industry and in every case what the Factor perceives as the risk of not being paid back. In all cases it is a letter or email attached to the first invoice and in some cases a verbal verification is also required. Surprise is never a good thing in today’s fraud rampant world so I always advise my clients to let their customers know in advance that they are Factoring.
Customers legally do not have a choice on whether to accept the Factoring arrangement or not, but a Factor will not fund unless the customer is on board. I advise my clients to contact each customer and inform them of what to expect. I show them how to present the positive aspects of Factoring, like being able to continue offering terms even as sales grow rapidly. The Factor will manage the A/R to ensure the documentation but it is the business owner who stands behind the product or service, and that needs to be made clear to each customer.
Larger companies are familiar with Factored invoices and in many cases have people or entire departments dedicated to dealing with them. There are also different levels of Notification ranging from “Full to Non-Notification”. Every business is different, and every Factor deals with Notification in a different way. Assuming the worst and not taking the time to understand the Notification process is simply not good business.
I hope that in the future business owners will be less concerned about their “image” and more focused on successfully growing their business open to looking at new ways to finance their businesses. Factoring eliminates cash flow problems, reduces bad debt and allows the business to grow as quickly as they can grow sales. It can improve efficiency while lowering overhead and allows the business owner to focus on the business itself. In my opinion it makes the business stronger.