There’s no question that factoring is an exciting and lucrative industry. It’s also a risky one. Being defrauded or failing to collect on one large invoice could wipe out an entire year’s profits. Below are four top tips for factors to consider regarding reducing fraud and loss:
- Verify debtors. Always independently verify all accounts payable contact information. Most clients are honest, hard working people, but once in a while there will be one who gets a friend to pretend to be a debtor when you call. You’ll want to ensure that debtors are real companies who have hired your client to provide a service and intend to pay their bills.
- Watch for skipped payments. A debtor who’s paying newer invoices before older invoices could indicate some sort of issue. It may simply mean an invoice didn’t get delivered properly, or it could mean funds have been misdirected and you may not be able to collect on those skipped, older invoices.
- Freight verifications are necessary. Factors that work with transportation clients typically spot-check loads by calling a handful of them, which is time-consuming yet still leaves the majority of transactions unverified. Technology can allow factoring companies to quickly and automatically verify all loads to ensure they were delivered to the appropriate location prior to funding each invoice.
- Verifications are critical for small clients. Imagine you’re asked to do an overadvance for a new, small client and then you get no additional business from them. If you don’t collect from the debtor, you’re left high and dry because you can’t make the money back on future invoices. So it’s even more important to verify 100% of small client transactions before funding them.
If you haven’t yet seen our previous posts in this series, they include tips about operations and tips regarding clients for new factoring companies. Next week, we’ll wrap up this series by talking about the big picture.