Recently a conversation has been going around the factoring and ABL lenders about the situation caused by advance lenders granting an advance to a client that they know is factoring their receivables. Virtually all factors have include in their agreements that the client may not borrow any additional funds without the secured lender's permission and advance lenders know that. For those companies that enter into an intercreditor agreement the problem is resolved. One of the arguments that was dismissed was that he advance may represent a purchase of future income. However, for most companies financing their receivable the bulk, if not all, of the company's revenue comes directly from the factor. How can an advance company purchase receivables that the factor has a lien on and will own?
If it came to the point that the secured lender felt insecure they could defaul their client and notify the debtors to pay all invoices directly to them resulting in little to no cash flowing through the bank account the advance draws from.
Bob Shaw
Advance Credit Funding Corporation
734-929-3800
rshaw@advancecredit.com
rshaw@millenniumfundingusa.com