First of all, if you are a subcontractor, I couldn't agree more with the advice given by Broadband03. A factor that will purchase invoices from a subcontractor due by most Primes is going into that arrangement with a strong perception of risk. Fees will probably be high and collections will probably be of paramount concern. Altogether, not a great situation for you and your Prime. Try to work out a discount for quick pay if possible.
However, for a Prime Contractor billing direct to the MSO, factoring with the right company can be a great tool for growth and stability. 5% would be a very high-end fee for a small Prime. With increased invoice volume, fees as low as a flat 2% can be arranged. Get your factoring company to establish a fee structure that is easy to understand. Additionally, when working with a well established quality factoring company, ensure they understand how your payment history works with your customer. If they habitually pay 45-50 days, explain that to the factor so they are not making collection inquiries at 30 days. Show them past invoices with corresponding pay stubs. Better yet, make sure they have already established a relationship with your customer (MSO) through another Prime. That way, they do understand how your business works and how your MSO operates their payment process.
The factoring business is ripe for fraud. Factors that do not do their homework go under all the time. Some are just not comfortable with your industry and its nuances. Some don't like to bring on clients that only bill one company. It makes them nervous that the company could go under (ie. Adelphia) and leave them holding the bag. Bottomline: Factors are just like any other business, some are good some are bad...get references !!!
I'd be happy to speak with anybody about the benefits or pitfalls of factoring. Feel free to call, no obligation !
Sincerely,
Jerry Ketsdever
Olympic Credit Fund
800-831-3357
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