Trust, But Verify

One of the primary roles of a CFO, especially for a company that is growing, is to help clients raise funds. Raising funds can take many forms: private lending, banks, venture capitalists, factoring companies, and more. Regardless of funding source, it is always important to make sure that you do business with people that either you know and/or are verified by someone you trust.??

Let’s look at a case study: You engaged with a factoring company — we’ll call them Unscrupulous A. Factoring is a type of lending where a company will allow you to borrow funds against amounts due from your customers before you actually receive payment. For companies that are in growing industries where it takes several weeks to collect on invoices, factoring is an effective tool to finance your operations in the short term.

Imagine in this case that you and your finance team have completed and signed all of the necessary documents to engage with Unscrupulous A, i.e. a detailed Letter of Intent, terms of engagement, etc. A deposit was exchanged per the written arrangement; however, as time goes on, the team sees some major red flags, and you end the relationship before Unscrupulous A has had a chance to do their due diligence and provide service. Unfortunately, getting your deposit back is now almost impossible because the company is fraudulent. What was missed at the outset? And how can this be avoided going forward?

1. Secure a Verifiable Referral Source: Make sure that any business partner that you work with is someone you have either done business with directly or can be verified through a person you know. There are many people who are not people of their word; and therefore all legal agreements and exchanges of money must be treated very seriously and with care. **If a company or individual is weary of giving you references and/or people to speak with, take that as a very serious sign.?
2. Find Additional Reputable Verification Sources of Your Potential Funding Company: If your financing is from non-bank lenders, you should have the ability to investigate the individual you are working with and/or the company that she represents. If they have any blemishes in their past, you can usually find them either through a search on the Better Business Bureau, or if needed, by doing a background check by way of a private investigator before you start to work with them. Although doing so requires an initial monetary investment, it is worth your time and reputation to fully research all future business people/companies.?
3. Trust your Gut: If an investor or an asset-based lender imposes deadlines that are either arbitrary or seem to be placed to rush you into a decision, refrain from engaging with them. All dealings should be done through detailed analysis and discussions with trusted advisors and internal employees to ensure that any deal, many of which may seem too good to be true, is thoroughly and completely evaluated.

In summary, when you are seeking funding from any source, make sure you do your homework and fully explore the lender’s previous dealings — and insist on receiving one or two references.?

Take-away: If you’re a growing company seeking a partner to assist in obtaining financing at market-rate pricing, reach out to Brian at [email protected].?