Due Diligence and Ongoing Monitoring

 View Only
  • 1.  Vendor Factors Accounts Receivable

    This message was posted by a user wishing to remain anonymous
    Posted 04-01-2024 01:29 PM
    This message was posted by a user wishing to remain anonymous

    Early in my career I worked for a couple of companies that factored their accounts receivable.  Neither company made it - the factoring was part of a downward trend that resulted in bankruptcy/insolvency for both. 

    For the first time in a Vendor Management role, I have come across a vendor that factors its accounts receivable.  Based on my previous experience, the red flags are waving.

    Do I have anything to be seriously concerned about?  Is there a stigma around factoring?  Is factoring considered to be the beginning of the end for a company?  Are there mitigating controls that we can put in place around the products/services? 

    Would appreciate hearing any thoughts or experiences.



  • 2.  RE: Vendor Factors Accounts Receivable

    Posted 04-01-2024 04:08 PM

    Generally, businesses that need to factor AR don't have sufficient working capital.   Factoring typically costs 15% or more, so it has to impact business profitability.   If the vendor provides mission critical services, you should obtain updated financials together with other documentation to determine if the vendor warrants continued engagement.  Suggest you have a backup vendor and at the very least have a plan to replace the vendor if circumstances require.  



    ------------------------------
    Tony Schweiger
    Managing Principal
    The Tomorrow Group, LLC
    ------------------------------



  • 3.  RE: Vendor Factors Accounts Receivable

    This message was posted by a user wishing to remain anonymous
    Posted 04-02-2024 11:14 AM
    This message was posted by a user wishing to remain anonymous

    Thank you, Tony - glad to know my instinct was correct. 

    I'm using financials from SEC filings so I am current on those, but still have to do my Negative News analysis.  Can you be more specific about "together with other documentation"?  We received a current SOC report (glad the vendor is still spending money on SOC audits) and insurance goes through the end of the year.   What else should I (try to) look for?