It is not usual for companies that are looking for factoring to have cash flow problems. As a matter of fact, factoring is specifically designed to help companies that have cash flow problems due to slow paying customers, so it should be expected that a number of prospects have some type of financial problem.
Factors can work with troubled companies
Obviously, some factoring prospects will have less than ideal financial statements. Their balance sheets may be thin, they may be low on working capital, their accounts payable may be challenging, or a whole host of other problems. Because of this, some prospects choose to embellish their applications. While there’s nothing wrong with presenting your best foot forward, and as a matter of fact it’s encouraged, one should never intentionally provide inaccurate information or omit critical details on an application.
What happens if you lie or omit information
This leads to the question – what happens if your application has a number of inaccuracies and omissions? The most likely outcome of this is that it will be declined. Sometimes, the factoring company may overlook small issues, but they will not overlook big ones. As a matter of fact, most factoring companies will double check information that is on the application against available public record information. This enables them to verify if the prospect has any:
- Tax liens
- Conventional liens
- Criminal records
Applications have inaccurate information or omissions because of the business owner’s underlying fear that the application will be declined if they disclose everything. It is possible that the application may be declined if it has substantial negative information. However, it is guaranteed that the application will be declined if substantial negative information is omitted or presented inaccurately. This leads us to her next question – so what do you do if your application is less-than-perfect?
What is your company has problems?
If your accounts receivable factoring application is less-than-perfect, your strategy should be twofold. First, you should honestly disclose all information that the factoring company is asking for. Second, you should approach the factoring company with a plan that shows how you will improve your situation. Since factors are used to working with companies that have cash flow problems, they are likely to be very receptive to this type of an approach. Additionally, they’re likely to respect a business owner who calmly and candidly addresses their problems. And if they don’t, you are better off finding out sooner rather than later.
Disclaimer: This article is for informational purposes only. It should not be considered legal or financial advice. Only a qualified professional can provide that advice and you should seek one if you require it