I spoke recently with Aaron Zahedani, Senior Vice President, and Underwriter at Bay View Funding, about Invoice Factoring. In the first part of a two part blog/interview, Aaron shared his knowledge with me, and his easy way of explaining clearly describes the huge benefits factoring can offer companies with healthy amounts of accounts receivable due to be paid in the future.
I asked Aaron when/why factoring is a good option, and I learned that it is extremely helpful for businesses looking to improve their working capital cash flow, Businesses can also benefit from the experience of a factoring company to collect from their customers and to reduce bad debt.
This led to why invoice factoring is better than an alternative loan? Aaron explained that accounts receivable financing offers incredibly deep advance rates against the eligible receivables they are able to fund, which means more cash flow for your business than a traditional loan. The types of credit that you receive from a bank or other financial institution may not meet your working capital needs and allow your business to grow as quickly as you would wish.
Once the basic concept was explained, I felt it would be helpful to understand whether factoring is a one size fits all or if it can be customized to specific business and industry needs. Aaron is very involved in the underwriting process, so he explained the importance of understanding the unique needs of each client. He told me that much time and research goes into every customer, and the best solution is the one that will be presented.
But how will factoring help businesses besides providing money? Aaron went on to tell me that besides offering financing in the form of cash for your business, they have skilled professionals that are excellent collectors. Credit and collection managers will help your business reduce bad debt, improve your AR turn with your customers and provide you with an outsourced collection professional; all included in your service.
When one hears the word ‘collector’ the idea of a collection agency comes to mind, so I wanted to understand how invoice factoring is different from a collection agency. Aaron was clear to point out that while invoice factoring is providing customers with an excellent service, it also has to manage risk. To this end, they are incredibly vigilant, and provide excellent customer service when it comes to contacting their customers’ customers. The lines of communication between all parties are always open. Any call made for payment is not only on behalf of the client, but also the factoring company, so it doesn’t pay to resort to collection agency tactics! “We have a mutual interest in serving your customer and getting you paid and providing excellent service to your customer and making sure they have what they need from you to pay your invoice.”
I asked whether some customers worry about the invoice management process, and invoice factoring companies contacting their customers directly for payment. Aaron explained that the invoice management team at Bay View Funding has vast amounts of experience having worked in positions that include accounting, where they have performed accounts receivable functions. They have experience that you might otherwise wish worked for your company as someone to manage your receivables. It is a free service provided as a part of the management process of your account.
In my next interview/blog I chat with Aaron further about the valuable resource of factoring.