Though most commercial invoice factoring companies are good legitimate companies, there are a few unscrupulous companies that give the industry a bad name. Over the last 5 years Sam Thacker has written about a few of 
them. A week or two ago, our staff found another one based in Southern California that “pre-filed” their UCC-1 financing statement against a Texas oilfield drilling company that needed working capital and didn’t know the financing statement was going to be filed. The factoring company disappeared as soon as they filed their UCC. Now they want a significant amount of money to release the UCC.
If you are considering using an invoice factoring company, please read these four columns that Sam wrote for AllBusiness.com.
- Five Tips to Avoid Unscrupulous Factoring Companies
- Using Factoring / ABL lenders – Borrowers Beware
- Finance Horror Stories Increase as More Companies Turn to Factoring
- Reading and Understanding Legal Agreements
All give good advice to companies seeking invoice factoring.
We have been helping small and mid-sized businesses enter into strong factoring relationships for nearly 20 years. We only work with good strong reputable factoring companies. Give us a call. There is no cost to the borrower for using our services to find the best invoice factoring fit available to your company. 1-855-220-8585.
No question that there are factoring companies out there that are less than ethical. I started my career in factoring in the early 90’s, went on to other forms of corporate finance and returned to my own consulting company, Huntington Coast Capital (www.huntingtoncoastcapital.com), 2 years ago.
On the other side of the coin, factoring companies get a bad wrap. In your example above regarding the UCC filing and money required to release it – I am willing to bet that the client had the factoring company conduct a lot of due diligence and work prior to committing to them. Then, down the line a few weeks, elected to take a different route, sticking the factoring company with the bill. This is not uncommon.
There are two sides to every issue and small business owners need to manage their expectations when looking for a funding partner. If you have disorganized books, lack of experience, huge execution risk, or any mixture of these, you need to have an honest understanding of the type of financing you qualify for.
Factoring companies are used as bridge financing for the most part, however, the top companies in the industry price their programs very close to bank financing without the scrutiny bank’s conduct. Some companies prefer factoring for the reliability of capital. Banks do not have an interest in small business. They have an interest in holding your deposits and having their loans insured through various SBA programs. They are not on the side of small business.
Factoring companies, for all their imperfections, have an entrepreneurial approach and provide financing where banks will not.
Just my two cents….
The commercial finance industry is made up of a number of kinds of companies including asset-based lenders, factoring companies, leasing companies, and a few specialty finance companies. The industry is huge, with estimates of annual transactions funded exceeding $1 trillion dollars in the U.S. The industry is made up of some regulated entities (banks), but probably 75-80% of the industry is not regulated.
The potential borrower had talked to and made application to the factoring company but chose not to use them. The company kept a copy of an application they made to the factoring company but couldn’t find any language on the application that authorized the factoring company to file a UCC-1 against them.