Your Factoring Company as your Credit Department

A common question we hear from companies looking to factor is: “I’ve heard factoring is expensive— how much is a factoring company going to cost me?” When evaluating factoring companies, most business owners don’t see the factoring company as a resource for reducing costs. While factoring companies charge a fee, they also provide key services that should offset much of that cost. Perhaps the question should be, “How much is a factoring company going to SAVE me?”

The best factoring companies maintain extensive databases containing their firsthand collections experiences across various industries. The best factoring companies will provide credit guidance to their clients to help reduce the likelihood that any single customer might bankrupt its client. Unfortunately, predicting which customers are going to go bad is not an exact science.

Credit underwriters used to say that the best predictor of how well a company will pay its vendors in the future is how well it paid its vendors in the past. The recession of 2008 has rendered that paradigm largely obsolete. Financial statements and the quality and quantity of disclosure that accompanies them have become increasingly important to the credit underwriter.

Clients are having to rely more and more on the experience and guidance of their factoring companies in establishing prudent credit policies. A strong, well-followed credit policy is infinitely more important than any single credit decision.

Author: Tony Furman
Copyright 2009
Interstate Capital Corp.

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