The Factoring "Lock Box"

The Factoring "Lock Box"

As the eyes and ears for a Factoring/Financing company, it is interesting to be involved and surrounded by new terminology, as it is in any industry.

My quandary today was, when involved in a conference call, describing a factoring “lock box” by the financing bank.

Here was the dilemma:

This certain company is working on a contract with us involving buying their accounts receivable. The clients were worried that their customers would know they would be going by a secondary finance company, that is fronting them money.

Here is where I would like to interject. Factoring happens to be one of the oldest and most basic forms of getting financing outside of a bank. It has been used for centuries, if it were not for factoring, there would not be clothing on your back, because that is how the garment industries were started. It is a widely known, and widely used option to small and large business owners. Try to find an industry that is retail or sells a good that does not use some sort of commercial financing or factoring. So in summation to my soap box rant, there should not be any worries about someone knowing that you have a factor buying your receivables.

Back to the story…

As we were in the midst of this conference call, my superior was trying to explain this fraud deterring system called a “lock box.” If you are in the industry, you would know that one of the 4 most shared forms of fraud that is committed is when a client does not submit, or notify the factoring company of an invoice that the creditor had already purchased.

My superior did an excellent job to avoiding the “F” information, (keep your mind out of the gutter, I average fraud,) and told them how that it is merely a course of action to show verification to us and the bank that your checks are coming by and that the money you had promised is not being lost in translation.

To put it shortly, a “lock box,” is a system that all checks are placed into, a photo is taken, and so that all parties involved can see what and where money is being handled, and sent to, as a safety precaution for the money that is being loaned.

This approach may not be the most alluring to all businesses. An example of that would be a high profile customer, that wants to free up some cash, but does not want their customers to openly know about the invoices they have sold to the creditor. The lock box makes this informational obtainable to the customer, and may be viewed as a blow to the client, but it is not, it is just another way of freeing up capital.

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