Wednesday, July 27, 2011

Why Do Factoring Companies Need To See So Much Paperwork???

Many people considering PO and/or AR funding have wondered why factoring companies need to review detailed transaction documentation. I have heard, "Well, the banks don't need to see that." It can be frustrating to have to submit so much paperwork, but the way a factoring company funds is based upon the transactions of a business, not solely on its financial statements.

The details of what is listed on customer POs, POs to suppliers, proforma and commercial invoices from suppliers, shipping documents and invoices to customers are of great importance in making sure that your transactions are done properly and that if anything should go wrong the documents can stand up in court. Items that may appear to be of no great importance generally are (Incoterms, shipping dates, cancel dates, payment terms, bill to and ship to addresses, etc.) and can be the difference between a transaction running smoothly with well established relationships and a distaster and damaged relationships. As in the rest of life it is the little things that really count.

Whereas a bank is mainly focused on cash flow and profitability, PO funders and factors are more interested in the credit quality of your customers and the performance capacity of your suppliers. When funding invoices and POs the key to the kingdom is solid paperwork.

Below is a testimonial from one of our clients which upon first reading is quite funny, but once you read it a second time you can see that by focusing on the documentation and flow of goods your funding company can actually help improve your successes and business processes. You can find it on our website here.

Working with Bibby Financial Services – what was it like? Well, it was sort of like hell.

Our company sells Tasers and police training to the Brazilian government. I had a two-week deadline to complete a transaction that involved multiple currencies, different time zones, multiple parties and numerous legal and governmental hurdles. And what did Bibby do? They held my feet to the fire. They made me jump through hoop after hoop. Each day, there was one more thing to do and then another and then another. They made sure every step in the process was completed on time and in excellent order. The result was a perfect transaction. So now we are doing it again.

Remember, nobody else could do this deal. Bank after bank denied my transaction because they wouldn’t do purchase order finance. Then, speed was everything because we only had two weeks, start to finish, to get the product to Brazil. And finally, this deal mattered to our company. A lot. Because this one sale was larger than all our sales for the previous year.

Here’s how the deal worked:

Our company won a contract to deliver $4 million in Tasers to Brazil. The first step was for the government to issue to us a non-transferable letter of credit through the government-owned Banco do Brasil, stating the firm two-week deadline. Because the size of the deal was so large, our company needed cash to pay the manufacturer ahead of time. Bibby stepped in at this point. First, Bibby insured that the bid process in Brazil and subsequent agreement were properly executed. The letter of credit was assigned to Bibby, who then sent third-party inspectors to the manufacturer to make sure the product complied with standards set by the Brazilian government. Bibby paid the manufacturer based on that report. Bibby also coordinated with the manufacturer, trucking company and freight forwarder to insure that the goods would arrive in Brazil on time so they could collect from the LC. The goods were shipped to Brazil by air and the Brazilian government paid the letter of credit via the Banco do Brasil, sending the funds directly to Bibby.

What was it like working with Bibby? All of the things that needed to be done were done. Bibby knew the process to keep things moving forward. Bibby has my respect – they came through when others wouldn’t. It was very special in a common way, but they did it in a very special and uncommon way.

What was it like working with Bibby? Fun.
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