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Invoice Factoring from an Attorney's Perspective

Posted by Gil Oliva on Thu, Mar 14, 2013 @ 02:11 PM

In today's economic environment, businesses are finding it difficult to handle day-to-day operations of their practices while also keeping tabs on their accounts receivable. Whenever the economy takes a downturn, clients tend to fall behind in payments they owe. This disrupts the operation of the business, obviously. If you're a business owner and your clients are slow to pay you, this can put you behind the eight ball in terms of paying your own staff and paying vendors.

Attorneys sometimes deal with clients who find themselves having to deal with customers who are falling behind on their payments. This often leaves the business with the option of either absorbing the loss or turning it over to a credit collection agency. Neither of those solutions is acceptable, however, when it comes to making sure the business remains operational while trying to collect the money that is owed.

One solution attorneys are suggesting is factoring.

When you look at factoring from a business owner's perspective, it's quite a good deal. You simply go to an invoice factoring company and sell client invoices to the factoring agency. In turn, you'll receive anywhere from 60% to 90% of the total sum of the invoices. The factoring company then works with the customers to get the full payment. Once that full payment is received, the factoring company takes a percentage. The most important thing is choosing the right factoring company to work with. They need to be professional and accessible. You need direct answers to your question. What’s the factors reputation in the industry? This is important.

Benefits of Invoice Factoring

To see the benefits of factoring, you need to understand there's a solid difference between an invoice factoring company and a collection agency. In many cases, the collection agency will often settle with the customer for a lower amount than what is owed. That's not how an invoice factoring company operates. The company goes after the full amount that is owed to the client.

One of the biggest benefits of factoring from a business owner's point of view is how it provides fast money in order to keep operations flowing smoothly. By providing you with the money to keep things going, you're able to focus on your business and allow the professionals of the invoice factoring company to deal with the accounts receivable. In most cases, the company is proficient is the best ways to handle customers to get the money that is owed, whereas many small business owners simply lack the necessary skills to get the job done.

With a good factor, you are getting a company that knows how to manage an accounts receivable portfolio. They will be able to manage problems with the receivables and also have good people skills.

What to look for in Factoring Companies

Naturally, it's important to make sure that you go with the right factoring company. You'll want one that has a solid track record and has a strong customer base of satisfied clients that provide references. You'll also want an factoring company that knows how to choose its clients. After all, if a company takes on too many small businesses that made credit-foolish mistakes, there's little chance of getting the money owed from those clients that are not paying.

This leads to another benefit of factoring: weeding out bad credit risks. A good factoring company will actually examine client lists to determine creditworthiness. This allows you to steer clear of any customers who have credit issues or who fail to pay on time.

In the end, going with an factoring company allows you to spend more time focusing on growing your business, while leaving your accounts receivable in the hands of trained professionals.

To find out more, download Bay View Funding's Five In Ten or (FIT) series covering questions regarding factoring services. Five factoring related questions asked and answered in ten minutes or less!  You’ll get the legal perspective of factoring from Steven Kurtz, from the legal firm Levinson Arshonsky and Kurtz.  Mr. Kurtz represents numerous factors, asset-based lenders, and banks on a national level; he is actively involved in the International Factoring Association, serving as Co-General Counsel. It’s important to get advice from an attorney's perspective. Two of the five questions he addresses are:

  1. Is factoring a good way to manage your accounts receivable department?
  2. Why do you think factoring has grown?

Find out the answers to these important questions and get a valuable information from an experienced attorney's perspective!

Talk to a Cash Flow Expert

Topics: The Benefits of Invoice Factoring, Financing Government Contractors

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