Occasionally a factor will decline the invoices from one or more of your customers. An unreliable payor or one who represents an perilously high percentage of your volume will raise risk concerns with funding sources. The ongoing credit management that funders use to protect their interests and the aging reports your business generates can also alert you to customer problems. The traditional collections process, while often effective, can cause rifts with your customers that might send them looking for one of your competitors for future supply. Situations like this can be a source of worry... or opportunity.
Your customer might well have the same problem you do: cash flow. If they also sell to business and/or government, then their receivables might also prove fundable. Retail businesses either collect cash directly or charge a credit card, so they don't have fundable receivables. In that case they will need hard collateral like equipment or real estate to qualify for funding. The same criteria used to qualify your business will be used for your customers should you decide to refer them to Funding Realities.
Referring a distressed customer to Funding Realities is more likely than not to strengthen their loyalty to you, especially if they qualify for funding. At that point a funder is more likely to charge less for your receivables with them or at least accept them.
Other Sources
Funding Realities actively seeks the following types of people who might know companies who need the type of assistance we provide:
- Commercial loan officers.
- Certified Public Accountants.
- Bankruptcy attorneys.
- Turnaround managers.
- Credit managers.
To better service your clients and determine if our services are appropriate for them we have provided the following questions to ask them.
- Who are your customers? Accounts receivable funding applies to businesses who service or sell to other businesses, not retailers. The customers' credit, which is often related to size, is also important.
- What type of credit do you extend to your customers? Some businesses work on COD or charge a credit card on delivery and therefore do not directly extend credit at all. Others bill prior to delivery, which shortens the credit time frame and also exposes them to liability in the event of dispute. Funders look for terms of 60 days or less and billing upon or shortly after delivery.
- What are your operating margins? Liquidity in the form of A/R funding will take a bite out of the net operating profit in the form of a discount fee. Businesses which operate on slim operating margins might not be able to afford this kind of financing. Overhead does not scale linearly with sales and will be less of an issue if A/R funding results in significant sales growth.
- How do you bill your customers? The layout of invoices influences how customers view businesses. The old, handwritten bills of days gone by are often seen as licenses to take liberties with payment. A funder's back office can help with such issues. CPA's trying to bring clients into the 21st century will find a valuable ally in a factor.
- What operating capital shortfalls are you experiencing? In other words, what do your clients need the money for right now? Customers in trouble with taxes, payroll, vendors, or any combination of these will be more motivated to sell invoices. Growth companies who rapidly consume traditional working capital are the most difficult clients for traditional lenders but ideal for A/R financing.
- Where do you currently go for financing? This question is particularly pertinent to commercial lenders who are dealing with pre-bankable, non-bankable, or workout clients.
- Are there any creditors with actual or potential liens on the receivables? Funders need to secure first position on the receivables in order to advance on them. CPA's and attorneys should already have much of this information.
