The 5th part of our series, relating to secrets of invoice factoring companies, I will focus on what the steps invoice factors need to complete as part of their due diligence process. Click here to be directed to our blog home page to review the previous installments of our secrets series.
We will break this down into three parts.
- Diligence on your company
- Diligence on your customers
- Diligence on you personally
The first section that we will talk about is diligence on your company.
Factoring companies will be using several publicly available data bases to research your firm. They will be looking for the ability to receive a priority lien on the assets of your company. Things that affect their ability to take a priority lien could include the following:
- Liens from other finance companies or banks
- Federal and state tax liens
- Law suits and judgments
Most invoice factoring companies use one of the larger legal search databases to find court records and other publicly-available documents in order to determine if they can get a "clean lien" on your company and assets.
The diligence on your customers is relatively straight forward. Factoring companies will be using some of the large credit aggregation companies like Dunn and Bradstreet and Credit.net. The key to their analysis will be weather the factoring firm is comfortable taking 60 day of unsecured credit risk on your customers. One of our future "secrets" blog posts will focus on the credit underwriting process for customers.
The last part of the factoring companies due diligence will likely focus on the owners of the their potential new client (in this case you!). Again, most of the research is done through publicly available sources and will focus on any negative past activity including criminal activity (an obvious no), financial instability (depending on the circumstances, OK), and expertise in your respective business sector or industry.
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