Overview
Common misconceptions about factoring can hold businesses back from seeing the many benefits of a factoring relationship.
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One-on-One with Daniel Milberg
Despite having existed for centuries, the business of commercial factoring is still widely misunderstood. Many people unfamiliar with factoring think that it is simply a financial service that gives very small, cash-strapped manufacturers a way to discount their receivables immediately upon their creation and receive funding. While there are certainly many firms that provide that service, traditional factoring is much more than that.
Interestingly, while lending is certainly a big part of what Milberg Factors does, the heart of “old-line” factoring is not lending at all. Rather, it’s credit protection and servicing receivables.
All too often, clients are unaware that factoring can offer them a layer of protection on their receivables. In fact, many clients come to Milberg Factors not to borrow at all, but simply to make sure they get paid on their receivables. “In the same way that you would insure your production materials, your machinery and equipment, your cars and trucks, and your office space, it makes sense to obtain credit protection on your sales,” explains Daniel Milberg, president of Milberg Factors, Inc. Since just 2017, household brands like Diesel, Toys R Us, RadioShack, Sears, and Mattress Firm, have all gone bankrupt, leaving many suppliers on the hook for unpaid invoices. As Dan notes, “When a vendor sells an account on credit terms, it’s accepting credit risk of that customer. Whether terms are 15 days or 90 days, there is the risk that the customer will not be able to pay what is owed at the due date. And if that happens, the vendor could lose 100% of the value of that claim. We’re here to offer them a way to protect themselves against that risk.” When Milberg Factors approves a customer account for a client, if the account debtor is financially unable to pay its bills, Milberg Factors will make the client whole, absorbing the bad debt.
Here at Milberg Factors, when we lend money, the first thing we look at it is what the business needs, not what the formula says.
Typically, Milberg Factors takes control of the management of receivables right after the sale to the customer is made, relieving clients of the burden of handling receivables. Milberg Factors will ledger the receivables after they are created, make collection calls on open invoices, and apply cash payments as they come in.
Of course, in addition to offering credit protection and receivables management services, lending is an important part of what Milberg Factors does. Borrowers at Milberg Factors are typically middle-market companies with sales from $5 million to $500 million, not the smallest businesses, and clients, while leveraged at times, are nonetheless financially stable. While Milberg Factors lends money just as any other bank or non-bank lender does, a borrowing relationship with Milberg Factors offers much more than a typical bank line of credit would. Unlike traditional bank loans, which often involve rigid formulas and restrictions, borrowing arrangements with Milberg Factors are more flexible. Says Dan Milberg, “Here at Milberg Factors, when we lend money, the first thing we look at it is what the business needs, not what the formula says. Typically, we start with the client’s cash flow projections. Working with our team, once the client has developed a plan that we can all buy into, if there are periods of time when the client needs more support than a traditional formula would allow, we are here to support the plan and the client.” Although the collateral base will always start with accounts receivables, in certain situations, Milberg Factors will lend against inventory and other collateral as well.
When a vendor sells an account on credit terms, it’s accepting credit risk of that customer. Whether terms are 15 days or 90 days, there is the risk that the customer will not be able to pay what is owed at the due date.
Milberg Factors is here to work with clients through good times and bad. When our clients experience tough times, our instinct is not to run from the credit, but rather to work with our clients to help them to weather the rough patches and get the business turned back around. As Dan Milberg describes, “Milberg Factors credit experts work with clients to develop individualized solutions to help businesses grow and remain resilient when they experience ‘bumps in the road’.
According to the FCI, more and more clients are seeking factoring services, with the global industry growing another 5% since 2018.† While factoring is on the uptrend, many common misconceptions are still holding businesses back from seeing what a factoring relationship has to offer. Give us a call, and let us see how we can help your business.
CONTACT
For more information about Milberg Factors, Inc., please contact Daniel R. Milberg at (212) 697-4200, David M. Reza at (818) 649-7587, or Ernest B. White at (336) 714-8852, or email us at info@milbergfactors.com.
†https://fci.nl/en/news/PRESS%20RELEASE-%202018%20Preliminary%20Global%20Factoring%20Statistics/5459
finance,banking,factoring, business, receivables financing, credit protection, credit management, A/R management, loans, working capital, facts, misconceptions, myths
