Factoring Denied 2

6. Invoice Cannot Be Verified or Verified In Time

• This is a problem in large organizations where there may be problems in tracking or approving invoices for payment in a timely manner

7. Contingencies, Offsets Or contracts Between The Client And The Customer

• These would cover indemnities, holdbacks, chargebacks, allowances or discounts. If they significantly reduce the amount of the future invoice or allow the customer put a stop to all payments, factoring will be denied.

8. Client’s Customers Are Not Creditworthy

• Remember that factoring companies always do credit checks on the Client’s customer. If there are no independent records of the customer’s payment history, factoring will be denied.

9. Potential Federal Tax Liens

• The Client has not paid payroll, excise or income taxes on time.
• There is an agreement with the IRS for late or deferred payment, but the IRS will not approve a subordination agreement with the Factor.

10. Lawyers And Accountants

• Those unfamiliar with Factoring may advise against it, since they still see it as a loan rather than the outright sale of the invoice at a discount.

These 10 deal killers will become apparent during the factoring company’s due diligence. Every factoring company will react differently to these 10 items, depending on their risk tolerance.

Source: Peter Pirri, Deal Killers: 10 Reasons That A Factoring Deal Dies In Compliance, American Cash Flow Journal, October 2002.

© 2007 Sanjeev Aaron Williams & Cashwerks All Rights Reserved