Today's article about financial factoring secrets will focus on accounts receivable concentrations and how factoring companies view them.

Over the past 20 years there has been consolidations in almost every industry.  What is left is a business landscape that is dominated by large providers  who are super efficient becuase of economies of scale.  Most small businesses in today's world have a hand full of large customers that represent the bulk of their revenue.

With that being the reality, it is important for companies to finance their invoices, even if some customers represent 50% or more of their sales.

Just as you would rather not have all your eggs in one basket, factoring companies would rather not finance a client that has huge customer concentrations.  The worry is that, for what ever reason, the customer could not end up paying their bills, and you, and your financial factoring firm could be in a difficult position.

If you are currently the client of a financial factoring company or are in the market for a financial factor there are things you can do to make that particular customer or two that represents a large portion of your company's overall sales appear more attractive. 

• Get Credit Insurance - If you want to make your financial factor more comfortable about the credit standing of your customer, it may be worth investing in a credit insurance policy from one of the global carriers.  It isn't typically that expensive and you can make your financial factor the beneficiary of the policy.
• Track Record - Keep good records of how your receivables perform with your big customer.  When you make your case with your factor that they should be advancing on your big concentration account, you should be able to have hard evidence that shows how the invoices have performed over time.  You should be able to illustrate how quickly the receivables turn and what historic dilution has been (for more information about how dilution is calculated click here).
• Negotiation - Even if you get credit insurance and can build a strong case based on historic performance, your financial factor may still not feel comfortable lending against your concentration.  Remember, in this world, it isn't all or nothing.  You decide that your firm can still operate with a lower advance rate for this customer, and you may want to offer paying the factoring firm a higher fee for this customer's invoices. 

Remember, it is all about risk vs. reward and you can probably reach a point in negotiations with your factor where they get comfortable your big concentration.

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