Jencks Law, P.C. has created a risk management program specifically for factoring companies. The primary objective of the Client Risk Management Program is to efficiently yet appropriately correlate operational procedures to client-specific exposures. Analytics are based upon measurable criteria in order to produce frequently updatable metrics, critical to early detection of changes in risk levels. Program design and deployment are focused significantly upon fraud and misrepresentation detection and deterrence.
Clients are risk-rated into one of four risk categories: Preferred (lowest risk of loss), Routine, Monitor, and Special Handling (highest risk or loss). Stratification of client base across these risk categories is based upon equally weighted quantitative scoring in eight areas: (i) accounts receivable turn, (ii) dilution, (iii) collection ratio, (iv) debtor concentration, (v) advance percentage, (vi) delinquency rate, (vii) tenure as a factoring client and (viii) number of days since last invoice purchase. Scores are assigned to each of the scoring criteria, on a cumulative demerit basis (0-24) from “Preferred” (lowest score) through “Special Handling” (highest score). Composite score for all eight criteria is used to compute the Risk Rating by client. Computation of risk scores is done no more than monthly and no less than quarterly. During the first month a client is on the Factor’s books, the client is typically treated as “Monitor”.
Operational standards are determined by client risk scoring wherein higher risk clients receive more attention in all portfolio processes than those of lower risk clients.
Account Debtor Credit
While client risk screening is important, account debtor credit quality is still the most important issue for determining and monitoring account debtor credit and collection risks. It is suggested that the company has invested substantially in online resources to provide it with the most current and salient credit information to work in conjunction with the Client Risk Management Program.
For more information on this program, please contact our offices.