Although helping a client change factoring companies is something that is done every day, it’s a complicated matter that has to be handled delicately. The process has a lot of moving parts that have to be carefully orchestrated to ensure a smooth transition from the old provider to the new company. The biggest problem is that a mishap in the process can delay your financing – or worse – derail the process entirely. This short post will help you understand some of the critical issues that you will have to deal with as you change factoring companies. Please note that this list is not all-inclusive and is not intended to replace the detailed conversations and planning you should have with your new factor.
How long will it take?
The first question that you should ask you new company is how long with the transition process take. It most cases, it can go quickly (one week or two), but this varies by provider. It’s important that you know how long the process will take because it will impact your ability to finance your invoices. Which takes us to the next question.
How long will I be without factoring coverage?
There will be a period of time during the transition process where you won’t be able to factor invoices. Your old provider won’t be able to finance your invoices because you’ll be leaving soon and adding more receivables can disrupt the settlement process. Your new provider won’t be able to factor invoices either because they will be in the process of setting things up. You should speak to both your providers and try to determine how long you will be without coverage. You should build enough of a cash cushion to take you through this period, plus some extra time (for safety).
How will the transfer be handled?
Although the actual transfer and settlement supposedly happens “behind the scenes”, you should discuss the entire process with your provider to make sure that you are comfortable with it. The way the transfer is executed can have an impact on your company and on your client. Obviously, this impact needs to be managed. Which takes me to the last point.
How will clients be notified?
As you can imagine, your clients will need to be notified of your new factoring relationship. They will need to be informed of the new payment address, the new point of contact and the factors legal rights. They will need to execute a new notice of assignment as well. Some of your clients may react negatively to this – especially those that went through the process recently. You would be well advised to manage this process properly to minimize any potential problems.
Disclaimer: This post should not be considered legal or financial advice. Please seek professional advice if you need it.