Sam Thacker of Business Finance Solutions in Austin, TX is my personal expert on factoring. Okay, I guess he is an expert to other people, too.
As you encounter business borrowers you cannot help with a traditional loan, whether they be existing borrowers or prospects, understanding their options is a way to be of service even if you have to say no.
But if you are steering them toward factoring, let the borrower beware!
What is factoring?
Factoring companies are private commercial lenders that finance accounts receivable from businesses that sell to other businesses.
The use of factoring
is a viable and often good way for a business to gain access to working capital.
Let the borrower beware
You know that I recommend that every borrower read every document they are asked to sign. In fact, the title company we work with usually schedules a real estate closing for 1/2 hour, but if it is the Keiths, they schedule at least one hour. They know I read the docs.
Reading and understanding the documents is as critical for a factoring arrangement as for any other loan, maybe more. Because if it is the company’s first factoring relationship, they have no familiarity with many common terms.
The horror story and the solution
Need to understand the pitfalls of factoring better to advise your business borrowers? Read Sam’s article on a horrible factoring agreement.
Sam advises companies entering into factoring arrangements. He has designed a checklist of the most common types of fees and contract terms that are used in the factoring industry. He invites you to download this document and use it to help your business borrower make the decision about a prospective factoring company’s method of doing business.
Are you steering any of your business borrowers toward factoring? Why or why not?