Factoring Due Diligence Process - Kronos Capital White Paper Series

Our approval process for a new factoring client is a quick and simple process.

We believe the ability to deliver long term performance is the true measure of our success.

There is not the interminable paperwork associated with conventional bank loans which is due to the fact that a our business as a factor is to purchase the accounts receivable vs. financing the account receivable as would be in a traditional lending situation. Following is a general description of the straightforward due diligence process for a new customer:

Initial Phone Discussion and Introduction

Factors are introduced to new clients in a multitude of ways, including business partners, brokers, accountants, lawyers, personal relationships or internet leads. In all situations, the factor will communicate with a client and get an understanding of what the working capital necessities are going to be for the future of the company. Generally, factors will meet with clients to establish a more in depth relationship.

Review Past Accounts Payable History and Customer List

A factor must understand the detailed paying history of a client’s customer base. This is directly due to the fact that the factor will be purchasing the accounts receivable of the company and the payment commitments of the customer. Detailed particular attention will be made to returns, charge-backs, and discounts to better understand the actual amount received on a typical invoice.

Search and Verification of Existing Liens

A factor purchases the accounts receivables from a business/client. It is therefore critical that no other lender or bank has the ability to claim that invoice or receivable as part of their portfolio's collateral. Generally factors will repay existing lenders if the lenders have a claim or lien on a part of the receivables.

Customer Notification

The key aspect is that the factor will confirm that all payments executed by the client's customers are sent to a separate lockbox exclusively controlled by the factor. This condition is setup prior to advancing any funds to the client. Factored receivables have been sold to the factor, therefore payment by the customer must go to the factor and not the client. This simple disignation is generally noted on the "Remit To." section of the invoice.

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