Factoring companies across the country are having a difficult time doing business in California due to new disclosure laws. This guide will help you understand the impact it’s having on the factoring world and what you can do to get your business the funding it needs today.
Impact on the Factoring Industry:
- Transparency: The primary intent behind this law is to provide businesses with clearer information about the costs associated with financing. For the factoring industry, this means clearer disclosures about the costs associated with factoring invoices, making it easier for businesses to compare offers and understand terms. The core issue in the factoring industry arises here because of the fluctuating nature of the business. It is increasingly difficult to have a one-size-fits-all approach to deals because every business has different costs.
- Compliance Costs: Factoring companies must invest in systems, processes, and training to ensure compliance with these disclosure requirements. This leads to increased operational costs, especially for smaller factoring firms.
- Potential for Misunderstanding: Given that factoring is not a loan but a purchase of receivables, there’s potential for confusion when translating factoring fees into an annualized rate format. This could lead to misconceptions about the cost of factoring versus other forms of financing.
- Competitive Landscape: With increased transparency, there’s potential for heightened competition among factoring firms as businesses can more easily compare terms and fees. This could lead to narrower margins for some factoring companies but potentially better deals for businesses.
- Legal and Regulatory Scrutiny: Non-compliance or errors in disclosure could expose factoring companies to legal risks and regulatory penalties.
As you can see, factoring companies are staring at these risks and contemplating if doing business within California is worth it. Many companies believe doing business there is too risky.
At Factor Finders, we have connections to factoring companies across the country that are willing to do business with your California company. If your business is falling victim to a factoring company that is shying away from California, worry no more. Factor Finders is here to help.