Asset Based Lending and Collections

In many asset based lending transactions such as factoring or purchase order financing, the lender purchases a receivable or purchase order from a business at a discount. The lender is then responsible for collecting the value of the receivable or purchase order from the business's customer. This often involves the lender contacting the business's customer if needed.

Some businesses see this as an added value since they don't have to worry about collections and are able to focus more on their core business. Firms that have strict customer service standards may have concerns with this part of the transaction.

Most factoring companies are well aware of this concern and are very careful not to damage the seller buyer relationship. As long as the factor receives payment for receivables in a reasonable amount of time there will not likely be a problem. However, if a buyer does not pay on time, the factor may become more aggressive with their collections.

Firms that are especially sensitive to how their customers are treated may wish to handle their own collections. Most factoring companies are willing to make this adjustment, and there is a growing trend in this direction.