The ThirteenBiggest MistakesAssociated WithAccount ReceivableFactoring

…and how to avoid them

Financing Delivered! Quickly with Integrity .

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The 13 Biggest Mistakes Associated WithAccount Receivable Factoring

… and how to avoid them

Account Receivable Financing, also known as Invoice Factoring offersgrowing businesses a quick, easy way tofinance unlimited growth without incurring debt. However, to avoid ex-pensive mistakes, it’s vitally important to understand how account re-ceivable factoring really works.

o grow and prosper, every businessneeds a lot of “green energy” or money.However, a SunTrust Bank 2005 survey of 530 business owners found that because 69%relied on existing cash flow or profits to fundtheir growth, these businesses failed to real-ize their full potential.Factoring, a practice dating back to Romantimes, is a proven way for small and some-times larger businesses to alleviate cash flowproblems caused by delays in receiving pay-ments.Accounts Receivable Funding (Invoice Fac-toring) involves the purchase and sale of ac-counts receivables (invoices) at a discount forimmediate cash.Unlike a loan, factoring involves no debt, noliabilities, no personal guarantees, and nolong-term commitments.It sounds great, doesn’t it, and it can be --provided you:



Fully understand how factoringworks.



Know who you are dealing with.

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Carefully read your proposed fac-toring agreement.

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Ensure that you don’t commit thecommon mistakes.This white paper will educate business own-ers about the biggest mistakes commonlymade when factoring invoices … and how toavoid them.

“Caveat emptor

(buyer beware)clearly applies to the invoice factoringindustry because it’s unregulated withfew constraints on the people whowork in the industry. “

Seann Maxwell,

President

Stonehenge Capital Group

4324 Ridgemoor Drive NorthPalm Harbor, Fl 34685-3171Toll Free: (866) 274-8185

Email:info@stonehengecapital.nethttp://stonehengecapital.net

Financing Delivered! Quickly with Integrity .

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Mistake #1 – Working with aFactor Who You Don’t Know,Like and Trust

hen you enter into an agreement tofactor your invoices, you are in es-sence inviting a new partner into your busi-ness – one that you may not know very wellat all.As with any partnership, it’s better to be in-volved with people with whom you sharesimilar business and personal goals and val-ues. Otherwise, you may be engaged withpeople that you don’t like, don’t want toknow, and can’t trust, but who have muchpotential to harm your business and your cus-tomer relationships.Successful users of account receivable factor-ing take the time to check out the credentials,the business and personal ethics, and thebusiness practices of their potential factoringpartner, and thereby minimize the potentialfor considerable frustration, unhappiness andfinancial hurt.Since you are entering into a three-party dealthat involves you, your customers and thefactoring company, taking enough time tocarry out appropriate “due diligence” is criti-cal. Don’t be shy about asking for customerreferences and then be sure to talk with 3-5 of the factor’s customers. A good question toask is, “Knowing what you now know aboutCompany X, would you use them again tofactor your invoices?” Listen carefully to theresponse, and you learn much about your pro-spective business partner.

Mistake #2 – Giving theFactor Too Much ControlOver Your Business

ome factoring companies insist on con-trolling all communications with

your

customers concerning

your

invoices. Thisgives the factor too much influence over howyour customer ends up viewing your com-pany.Most larger companies today are accustomedto working with factoring companies, butthey don’t like to be badly treated in the proc-ess.A factor’s behavior can put at risk your hard-won relationship with your customer.In some instances, unethical factoring compa-nies have delayed payments to their clients,thereby causing financial strain and jeopard-izing the company.In another instance, a factoring company pur-portedly even tried to gain ownership of itsclient’s business through unsavory businesspractices.To avoid this mistake ensure that language inyour agreement doesn’t unnecessarily andinappropriately constrain you from communi-cating with your all-important customers.

“Thirty percent of business owners worryabout cash flow—and for good reasons.Most businesses will only go as far as theircash flow will take them because they areself-funded.”

The Business Owner’s Playbook

published by SunTrust Bank