Commercial Factor Q&A: The Keys to Completing a Factoring Facility for a Factor Client

Providing a factoring facility to a retailer or a manufacturer is one thing, but providing factoring to a company within the factoring industry presents another set of challenges. In April, White Oak Commercial Finance closed such a deal, delivering a $3 million recourse factoring facility to a factor that provides funding to the trucking and transportation industry. Martin Efron, executive vice president of White Oak Commercial Finance, provided a deep dive on the intricacies of the deal as well as the unique aspects of factoring for a factor.

How was this financing opportunity originated? Was it through organic business development or referral?

Martin Efron: The opportunity came through a referral from a colleague whose company is solely focused on retail financing. He met the owner during an industry conference and realized that White Oak could best provide the commercial factoring solution the business needed based on our experience funding factors and ability to provide flexible facilities.

It also helped that the owner’s primary language is Spanish. I am a native Spanish speaker from Argentina and White Oak has several bilingual representatives, and we were able to communicate with the owner throughout the process in his preferred language.

After the initial discussion, we flew down to Miami to visit the company, analyzed their processes, including what type of KYC and credit policies they have and how they monitor their portfolio, and we quickly determined they were managing their business well, which set the rest of the engagement forward.

Why did the company need financing and why was a recourse factoring facility the right option?

Efron: The company had been growing steadily and was raising money through friends and family but needed more capital to fuel significant growth. The owner quickly recognized that our recourse factoring facility was both fast and scalable, and less expensive than friends and family financing. Our recourse factoring solution allowed us to design a cost-efficient, flexible structure that appears seamless to their customers and at the same time it provides us with greater insight into the company’s performance, including how well they mitigate and diversify their risks.

What were some of the unique elements of this deal, if any?

Efron: One was the non-notification aspect of the deal. White Oak is well versed in working with refactors using recourse, non-notification factoring and we were able to see the company’s potential and recommended that it did not need to change its operating model. Another unique aspect was that the company has approximately 600 end customers that its clients sell to, which increases the complexity. Our platform enables us to support a large number of end customers, which often gives other factors reason to pause.

How does providing factoring for a factoring company differ than providing it for a non-factor client? Did that present any challenges or make things easier?

Efron: Providing factoring facilities to factors differs because we intrinsically understand a factoring company’s business — because that’s our business — and we have the internal know-how and mechanisms to ensure that our clients are following the types of processes that, in our experience, are successful and sustainable. We recognize that a refactor’s time and resources are precious and often stretched thin, and we try to help them free up those resources to grow their own business and deepen relationships with their existing clients.

White Oak also has a dedicated lender finance business that serves capital providers across a wide range of sectors, so being in tune with the industry allows us to use our own resources and know-how to help our refactor clients write and set up their internal policies and provide best practices on how to adhere to their guidelines, and in certain instances, we’ve even let our clients use our field examiners.

What kind of demand has White Oak Commercial Finance seen for factoring facilities like this during the first half of 2021? Is it expecting more or less activity on the factoring front as the year goes on?

Efron: We’re seeing strong industry momentum from both refactoring and traditional factoring companies and healthy demand in the first half of the year, and it continues to grow due to longer payment terms, supply chain disruptions and hiring challenges in certain sectors. We believe the demand for factoring in the second half of the year will be even stronger and White Oak is here to serve deserving companies with smart and scalable solutions.