Factoring 101 - the truth about invoice factoring and reputation

Let’s address the elephant in the room.

There was a time when invoice factoring was viewed as a “last resort.” Those days are long gone.

Today, factoring is a mainstream, practical cash flow tool used by companies of all sizes from startups, mature operating companies to publicly traded firms. In many industries, it’s completely normal. In fact, a lot of businesses are already familiar with their vendors or suppliers using factoring to keep cash flow steady.

Here’s what’s important to understand:

• You are still the supplier of record
• You’re still the point of contact with your customers
• Your customer relationship does not change

Some factoring companies will not disclose themselves and call on behalf of their customer, thus offering some additional transparency.

Your customer continues paying for the same goods or services, under the same contract, generally in your company’s name. The only real difference is that payments are directed to a different address or lockbox.

In real life, as long as their payment is properly credited and the process is clear, most customers don’t care where the check or ACH is sent. Accounts payable departments are accustomed to seeing Notices of Assignment. It’s administrative, not emotional.

And most importantly it’s still your relationship. You lead communication. You manage the account. You stay in control. An experienced and professional factoring company coordinates with you and keeps you aligned on any interaction with your customer’s A/P department. There should be no surprises.

It’s also worth remembering that factoring companies purchase performing invoices, not bad debt. They buy invoices from creditworthy customers who are expected to pay in their normal course of businesses. Theres NOTHING the factoring company can do to get them to pay any faster, the best a factoring company can hope for is that your customers continue to pay as normal.

If anything, having a professional involved can signal that you’re serious about managing cash flow properly.

Used correctly, factoring isn’t a reputational risk.
It’s a working capital strategy.