Last year Jennifer Barclay, founder of Blue Fish, a Frenchtown, N.J., apparel business, was looking for credit to keep up with her company's growth. Though profitable at revenues of $5 million, Blue Fish was struggling to pay its suppliers on time. "Our customers weren't paying us fast enough," Barclay says. Fortunately, she found a solution that didn't require her to sell a single stitch of equity. What Blue Fish does sell is its accounts receivable -- to a "factor."

Factoring allows companies to collapse the cycle between shipping products and receiving payments. Typically, a factor can advance 70% to 90% against a customer invoice within days, and factors (many are owned by bank holding companies) guarantee payment if customers don't pay. In most parts of the country, a number of factors are angling for business. But as Blue Fish management learned, not all of them are created equal. These criteria helped Blue Fish sort through the maze of players:

Knowledge of the company's market. As a test, Blue Fish asked five factors to assess the creditworthiness of the same list of 20 accounts. "As long as they'll be responsible," says Barclay, "you want the factor to approve the highest possible number without a lot of delay." Otherwise, you're turning down business and alienating customers. One factor was quickly disqualified based on the number of accounts it either rejected or lacked information on.

Cost of money and fees. Most factors quote basic administrative charges of about 1% to 2% of sales (reflecting the cost of, among other things, insurance and paperwork). If you draw money against receivables prior to the time when the factor gets paid, expect to pay annualized interest of 1% to 3% over prime on that advance. "But there's an awful lot of horse trading. It's like buying a car," says Blue Fish chief operating officer Marc Wallach. The quality and stability of your accounts affect the result.

Buried costs. Make sure you're clear on the factors' requirements in areas such as financial reporting, advises Barclay. And beware: like other salespeople, factoring-company reps may wait until the last moment to mention some critical details.

Multiple references. Barclay and Wallach got their accountant to suggest some names of factors, and they got other referrals from people in similar companies in the apparel industry. And factors themselves can provide useful insights into how their competitors do business.

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Looking for more information on factoring? Your banker or your accountant may have leads, or you might want to check out the 1993/1994 edition of The Edwards Directory of American Factors (Edwards Research Group, 617-244-8414, $199).