Is Zombie Debt Coming Back to Haunt You? Tips On How To Deal With Debt Scavengers

Just when you thought it was safe… here comes zombie debt!!!

A client recently called me in a panic. He said he just got called by an attorney from a debt collection agency and they said they would file a lawsuit against him in 30 days if he didn’t pay $3,000 he owed on an old credit card. However, they were willing to negotiate a settlement if he could make the entire payment by the end of the week. How nice of them.

They had quite a story. They said if he didn’t settle the debt, it would be transferred to the original creditor who would file a lawsuit. And that my friend would be subject to further interest and penalties and attorney’s fees and that they could garnish his wages. Scary.

“What do I do?!?!?! Can they really garnish my wages?!?!?! How much should I settle for?!?!?! Will you negotiate this for me?!?!?!” he said.

I told him to take a breath and I asked him a few questions. I was able to discern that the last payment he made was in July 2006. That’s pretty old debt. Sounds like zombie debt to me.

Who are zombie debt collectors?

It’s important to know who these companies are and how they operate. Generally, zombie debt collectors (also known as debt scavengers or junk debt collectors) buy very old debt for pennies on the dollar from the original creditors who have long since charged off this debt. So any money they collect is worth it to them. By many definitions, the statute of limitations (i.e. the time within which a lawsuit MUST be filed) has already expired. If the statute of limitations has expired, the debt collectors have no legal right to any money from the consumer. So it’s called zombie debt because it is “dead” debt that is brought back to life by these debt scavengers. Unfortunately, collecting zombie debt is big business because many consumers don’t know their rights and want to protect their credit.

How do zombie debt collectors try to collect?

Having bought this debt, these companies try to collect any money they can by selecting consumers they believe will most likely pay them any amount of money. So how do they do it? First they scare you. They will make you believe they are attorneys even if they aren’t, they will threaten to file a lawsuit, ruin your credit, seize your assets, garnish your wages, and put a lien on your house. Next, they will act like they are doing you a favor by accepting much less than they allege you owe, they will make harassing phone calls, they will they give you short time frames to pressure you into settling before you can consult an attorney or do any research, and they will lie. Sound dirty? It is.

The desire to resolve the issue and avoid further headaches is so strong that many consumers end up settling the debt even after they know its zombie debt. Just the threat of a lawsuit or wage garnishment is enough to compel consumers to pay hundreds or even thousands of dollars to settle the debt and protect their credit. This is what these debt scavengers rely on.

What do you do if you get a call from a zombie debt collector?

First of all-don’t panic! Take the time to do some research and understand your rights. Read on for tips and guidelines to follow when dealing with these “debt scavengers.”

Do not assume they are who they say they are and do not verify ANY information!

Who are these people? How do you know this is legit? Have you done business with them? How do you know it’s not a scam? How do you it’s not the result of identity theft? Ask them who they are and for contact information. And talk to them like you have no idea who they are or what they are talking about. They will try to get you to verify information. Do not give them any information and do not verify anything! And I mean ANYTHING! Remember, you have no idea who they are and they are calling about a debt you know longer owe. (See the “Do not acknowledge the debt!” section below.) Just get information from them, hang up, and then do some research first. They will try to use any information you give them against you. Warn other family members or roommates not to give them any information.

Do not assume that you owe this debt (or that they can prove it).

Just because a zombie debt collector is calling you, doesn’t mean that you owe the debt. Don’t believe for a second that the original bank or debt scavenger has all their paperwork and evidence together. Besides being barred by the statute of limitations, the debt could have been discharged in bankruptcy, or settled by agreement with the bank.

Remember the Robo-Signing scandal where bank employees signed affidavits without verifying any of the information in them? Financial institutions, including zombie debt collectors, can be sloppy and may never verify any of the information they have. After all, their goal is to get you to pay them anything and they have no intention of ever filing a lawsuit. They count on consumers not knowing their rights and hope no one calls them on it.

Can they prove they bought this debt? They need to prove that you lawfully owe this debt, that they lawfully purchased this debt, and that the debt was lawfully transferred to them. They would need to prove this in court if they filed a lawsuit, unless you ignore it and they get a default judgment against you.

Do not assume that they have the right person.

Most of the time, debt scavengers do not have current contact information. They have whatever information was on the account from years ago. They will then try to track down the right person. As you can guess, they often don’t have the right person and are just fishing around. So even if you had a credit card from the bank they are inquiring about, it doesn’t mean that they have the right person. This is another reason not to talk to them or give them any information.

Determine if the statute of limitations has expired.

I called the debt collector back on behalf of my friend and they tried to tell me that the statute of limitations runs from the date of the last activity on the account, which was when the original creditor charged off the debt. Statutes of limitation are laws that set the time within which a legal action must be filed, after which no legal action can be brought regardless of whether a cause of action existed. In other words, if you don’t file a lawsuit within the time set by the statute of limitations, the court will not allow you to bring an action.

First of all, this doesn’t make any sense, because the creditor would control the statute of limitations by waiting to charge off the debt. Could you imagine a creditor filing a lawsuit 40 years later because they hadn’t yet decided to charge off the debt? In California, the statute of limitations begins to run on the date of default, which is the date that the consumer should have made a payment, but didn’t. This puts the creditor on notice that it must take action to collect the debt. The statute of limitations is two years if there is no written agreement between you and your creditor. If there is a written agreement, the statute of limitations is four years. If the creditor obtained a judgment against you in court, the statute of limitations is 10 years, but can be renewed. Statutes of limitation vary widely from state to state, so you must check the laws in your state to determine the time limits applicable to your situation.

Even though it is a violation of the Fair Debt Collection Practices Act to file a lawsuit after the statute of limitations has run, the sleaziest companies file lawsuits anyway in the hopes that the consumer doesn’t respond to the lawsuit and the collection agency ends up getting a default judgment against the consumer. This will then turn the previously uncollectable debt into very collectable debt. It is also important to note that although the statute of limitations prevents debt scavengers from filing a lawsuit, they are still permitted to try and collect the debt. However, many of their tactics violate a law called the Fair Debt Collection Practices Act.

If you have determined that the statute of limitations has expired, then this is clearly zombie debt. If you have determined that the statute of limitations has not expired, then this article is not for you. In either case, you may want to contact an attorney for further consultation and legal advice. Many attorneys offer a free consultation so you should take advantage. Search for an attorney that practices consumer rights, consumer debt, debt collection, debt relief, Fair Debt Collection Practices Act, or even bankruptcy in your area.

Do not make any payment whatsoever!

A favorite trick of debt scavengers is to hound you into agreeing to a payment plan and to immediately make a “good faith” payment of $10 or some other small amount. They will try to get your bank account number and routing information. This is a mistake! Do not make any payment no matter how small the amount or whatever they promise you. Do not negotiate. Do not make any deals. Do not agree to a payment plan. I think you get the idea.

Doing this will revive the debt, which is called acknowledging or reaffirming the debt. Even admitting that you owe the debt could be used against you. Often, it can be difficult for most people to say “no.” Most people don’t want to be “dead beats.” So it is important to remember that you are not being a dead beat because you do not owe this debt.

So I called these debt scavengers back. They were very nice on the phone. I asked them for specific information about the debt they were calling about. Without admitting anything, I asked about the last transactions and transaction dates on the account they allege my client owes. Not surprisingly, the statute of limitations had expired. I advised them that it is a violation of the Fair Debt Collection Practices Act to file a lawsuit or even threaten to file a lawsuit after the statute of limitations has expired.

She said the statute of limitations runs from the date of the last activity on the account and that was when the debt was sold to the debt collection agency! They’ve got some nerve!

I asked them to send me a letter verifying this debt and stating when the statute of limitations ends. She said “sure” and took down my address and phone number. We haven’t heard from her since, and probably never will.

If they think collecting from you is more trouble than it’s worth, they’ll move on to the next poor victim that doesn’t know their rights.

Final Thought

I have heard banks talk about a moral obligation to pay the debt. Maybe to the original creditor (and that’s a strong maybe), but certainly not to the junk debt buyer. If the original creditor or debt collection agency owed you money, but the statute of limitations had run, do you think they would pay you? This isn’t about morality, it’s about the law.

As consumers, the best thing to do is to know your rights. Please feel free to share this article with your family and friends so they can protect themselves and eventually put these zombie debt collectors out of business.

All 7 Complete Options For Getting Out of Debt & One Free Option With No Bankruptcy, Consolidation

HELL NO! BANKRUPTCY, DEBT CONSOLIDATION OR DEBT SETTLEMENT, ARE NOT THE ONLY SOURCE FOR DEBT RELIEF SOLUTIONS THAT ARE AVAILABLE TO A DEBTOR!

If you are, perhaps, chronically up to your eyeballs in debt today and are looking for a way to get out of debt, you might be inclined to think that your only options for debt relief are just limited basically to two, maybe three, main options – some variation of debt settlement with your creditors, a debt consolidation arrangement, and declaring bankruptcy.

This general notion is largely because many Americans still see many “traditional” ways for how to get out of debt, especially filing for bankruptcy, as a negative step and are repeatedly told in the media that it carries with it a stigma that can negatively affect their ability to reestablish good credit in the future. Television, radio and Internet advertisers, constantly promise financial relief through debt consolidation. They prey, in essence, upon the largely established myth that bankruptcy is a bad thing while they claim to offer an alternative to bankruptcy by way of debt settlement or consolidation.

In truth, however, there are in fact broadly a complete SEVEN major debt solutions options that a consumer may use in getting out of debt, from which you may choose to address your debt problem. And, as in everything else in life, each remedy option has its own advantages as well as drawbacks.

The following are those SEVEN basic debt relief options available to you

1. BANKRUPTCY

Filing bankruptcy is one option you may use, if suitable for you – protection under the U.S. Bankruptcy Code or law. Filing for bankruptcy is just ONE option, however, among many. In deed, bankruptcy should really be considered only as a last resort.

How do you get out of debt through bankruptcy? Basically, one of the treasured and most immediate beneficial reliefs of filing for bankruptcy for you as a debtor, is that upon your filing, you IMMEDIATELY get what is called the “Automatic Stay” protection, meaning a standing court order that immediately stops most creditors from contacting you and trying to collect on your debts, or slapping garnishment, lawsuits, and repossession (including foreclosure) on you, etc. The automatic stay will continue to apply to your creditors – UNTIL the bankruptcy court looks into your case and gives a final order on your bankruptcy petition about discharging your debts.

THE BOTTOM LINE: Filing bankruptcy will, for the most part (except in very, very rare cases, actually), “discharge” most of your debts (except, really, for any non dischargeable ones you may have, if any), thus having you get out of debt. That is, you will be free of those debts and would cease to owe them any more legally.

2. DEBT SETTLEMENT

This method is, in fact, the fastest and, in some respects, the least expensive way used by consumers to get out of debt today. The method, often referred to also as DEBT NEGOTIATION, is simply a direct and ambitious approach to debt reduction, involving a personalized plan that effectively enables a debt settlement negotiator to negotiate a compromise with creditors to settle mostly your UNSECURED types of debt.

Debt settlement has become a viable debt relief alternative for thousands of consumers across the country. Successfully conducted debt settlement negotiations, when undertaken by the right company and professionals, and with the right programs, have been known to eliminate up to 60% to 70% of a borrower’s total balance on the debt, and often paying off the debt in its totality in less than three years. In deed, one company known by this writer to have been reviewed recently by an organization and was designated to be the best of them, has recorded nearly 90% savings for its debtor clients. However, this method will work for you mostly when your debt is of UNSECURED type (credit card debts, hospital bills, rents, utility bills, and the like).

BOTTOM LINE: A good debt settlement agency (and its personnel), is a professional negotiator that can help you arrange directly with your creditors, through its wealth of skill, experience and connections, for a much better and more livable deal for your debt (whether unsecured loans, medical expenses, charge cards, or traditional credit accounts) with your creditors, which could result in a drastic debt reduction or elimination for you, with you almost completely getting out of debt. It could be beat down in value even to the point that what you’ll have to pay back will amount to merely some 30% or less of what you actually owe!

3. LOAN MODIFICATION PROGRAMS

Loan modification is a relief method of getting out of debt which involves the restructuring makeover of your current loan to re-establish your mortgage and create a monthly mortgage payment that will work for you or be more manageable within your budget. Do you completely get out of or get rid of debt with this option? No. Loan modification is not a refinance of your mortgage; it is merely an ENHANCEMENT of your current mortgage loan to create a payment that you can better afford. A loan modification, when successfully made, will usually result in saving you thousands of dollars over the life of your mortgage loan.

4. DEBT CONSOLIDATION.

Debt Consolidation, also called CONSOLIDATION LOAN, simply means a way to pay off debt by replacing a debtor’s MULTIPLE LOANS with one SINGLE loan, often attaching to it a new and reduced lower monthly payment and a longer repayment period so as to make it more manageable for the debtor to repay the debt owed on a monthly basis. Typically, the type of debts for which most consolidation arrangements are made, almost exclusively involve home equity and home mortgage loans. Essentially, in such arrangements a lending institution will provide a homeowner with a home equity loan that will help “consolidate” his or her outstanding debts into one monthly payment. Because of this aspect, many critics of the consolidation loan method of getting out of debt, have condemned that method, likening it to borrowing money to pay off borrowed money and saying that such an arrangement just doesn’t add up for the debtor’s benefit.

5. CONSUMER CREDIT COUNSELING.

Credit counseling is considered an important aspect of how to get rid of debt within the debt relief or management solution industry. In this case, you use a Consumer Credit Counseling service or company (CCC), which is usually a nonprofit organization, to approach your creditors and try to work out with them on your behalf a more manageable payment plan. Typically, they will charge a fee for their services; and their job is to attempt to negotiate with your creditors, try to work out with them a plan for reduced minimum monthly payments for you on your debt amount, reduced interest rates, and a generally more lenient payment terms.

Basically, the repayment system used for this debt relief method follows essentially the same principles as the ones used in the Debt Settlement option set forth above. And, of course, as in the case of debt settlement and debt consolidation plans, you will have to have some reasonable steady income to be able to take up this debt relief method. However, in this case, these (nonprofit) organizations would usually combine your payments into one monthly payment, and you pay back all of the principal, some interest and some fees. Many CCC organizations receive funding fees from creditors as well as some payment from their clients. For many debtors, this could often be a beneficial method for how to get out of debt

6. DO NOTHING.

You may decide that your best or personally preferred option is to do absolutely nothing – pay your creditors nothing, and say nothing to them. Just let their letters and phone calls, keep piling up! You just struggle along and manage along, to whatever extent you can, while your creditors keep on turning up the heat. And now, at some point, you’re at the point where the late fees, penalties and interest expense make it impossible to keep your head above water. And perhaps, only then, you can begin looking for help to assist you get out your virtual debt hell!

Now, that’s an “option” just as well, like any other!

7. A UNIQUE DEBT RELIEF option WITHOUT BANKRUPTCY, NO DEBT SETTLEMENT OR CONSOLIDATION, and is FREE

Though little-known to most debtors, there is yet another debt relief solution method available to debtors which could be used by debtors to resolve their debt relief problem. The method is highly effective, though innovative and nontraditional – completely how you get rid of debt, without any bankruptcy, debt settlement or debt consolidation, using some little-known tactics, techniques, and strategies developed by Scott Stephen, a debt elimination expert.

This innovative option on how to get out of debt, has been reviewed and highly praised by an array of such impressive elite of the American financial media, ranging from the Wall Street Journal, the USA Today, and the Kiplinger, to the Money magazine, the Bottom line, and the Dollars & Sense, among many others. Yet, hardly anything is heard about it by the mass media operators, or by the professionals who market various debt relief options on how to get out of debt.

For more on how to get out of debt using the cheap, low-cost version any of these debt relief options, fees, and without the use of debt settlement, debt consolidation or bankruptcy, please visit this site: http://www.HonestDebtReliefReviews.Org/All7DebtReliefs.html

Financing Films – Use Your Tax Credits For Film Cash and Working Capital

Despite several major positives on the 2010 horizon financing films, the job of getting film cash and working capital is still a challenge for Canadian productions. Utilizing your tax credits in a creative and timely fashion is one method of raising capital in three of the main entertainment segments in Canada; they include film, television and digital animation credits.

Owners of productions in these segments can be forgiven for feeling lost or having difficulty in moving a production forward.

The challenge is even keener when as an owner of creator of a production you don’t necessarily have the ability to finalize distribution or pre – sales in today’s complex global environment. More than ever it is necessary to align yourself with a trusted, credible and experienced advisor in this unique business and financing area of the entertainment industry.

Let’s focus on how you can in a straightforward yet creative way ensure that you are maximizing capital, and cash flow via the utilization of the current generous tax credits available in Canada. When you think of the various sources of financing for your production you should always consider tax credits, and the financing of them, as a key source of film financing and film cash. And as we noted, this applies to both televison productions as well as digital animation, which is fast coming up from the rear as a major entertainment and business segment in the industry.

Tax credits should be an integral part of your overall financing strategy, and we clearly need to emphasize the need for an overall ‘strategy ‘in order to get your project completed. Identifying your tax credit financing partner will assist you in raising valuable capital and eliminating potential financing gaps in your production.

A reputable tax credit financing advisor will help you navigate the maze of financial organizations that participate in financing of your tax credits – these include independent finance firms, private funds, and in some cases organizations related to accountants and lawyers in the industry.

Many Canadian production owners do not realize the financing of your tax credits can be done at two different times in the life cycle of your project. Naturally once your credit has been filed and certified it is financeable at that time – generally we can say that you can received from 60-80% of the tax credit value in immediate cash and working capital, allowing you to recover a significant portion of your expenses. If we use 40% as a broad guideline (it varies between type of tax credit and type of production) you can see the cash flow and working capital power that immediate capital brings to your production.

However, did you know that in many cases you can receive a type of pre- financing for your tax credit? This allows you to generate often needed working capital immediately after it has been determined that you have an eligible project, as well that its ability to be properly document re budgeted expenses and ‘ points ‘ required to be properly certified.

Your ability to present a proper financing plan, demonstrate a realistic budget, and ensure that you have a team in place to document all that can generate a major part of your initial financing. Pre-financing of such a tax credit could often achieve immediate financing of at least 40% – if not more, in upfront working capital. Those funds, in connection with your other resources are often what can take the financing of your project to the goal line.

Talk to an advisor in this area, ensure you understand the power and benefits of tax credit financing, and the fact that these claims can be financed prior to and during your project! That’s a winning film / TV, and animation financing strategy!

How To Avoid The Risk & Benefit From Debt Consolidation Loan

Debt issue is a matter for many people. Survey results show that American households are carrying an average of $10,000 debt, mainly on credit cards debt. Paying back multiple debts have long stayed a headache for many debtors, and a debt consolidation loan has been a primary solution of this phenomena. While you can benefit from consolidating your multiple debts with a debt consolidation loan, there are some risks that you need to beware of and avoid yourself from these risks. This article will discusses some of the risks of debt consolidation loan, how to avoid it and how you can benefit from utilizing a debt consolidation loan to restructure your life financially.

The Risk of Debt Consolidation Loan

A debt consolidation loan is just another loan that acts simply as replacement of you multiple debts. It allows you to combine all your debts into single debt and pay off with a new loan.

Many debt consolidation loans lower your monthly payments by extending the loan repayment period but the new loan’s interest rate remains the same with your old interest rate. Hence, if you calculate it carefully, you will end up with paying more in total interest. You can avoid this by carefully select your consolidation loan package that has reasonable low interest rate and a repayment term that enough to lower the monthly payment to your affordability. Don’t take the maximum repayment term as you will end up with paying a lot more total interest.

A debt consolidation loan may causes you trap into more debts, why? A debt consolidation loan clears all your credit card debt and your credit cards are free and back to the maximum limit for uses again. Many debtors have forgot that their debt still remain, just change from credit card debt to a consolidation loan. They are very happy that their credit cards can be used again, the impulse purchases, temptation of spending without remembering that they still have a consolidation loan to be payoff, adding more balances into their credit cards and becomes their new debt when they can’t pay it later.

Hence, you must commit to yourself to get out of debt and have a self discipline to control your expenses while repay your consolidation loan. The best way to avoid new credit card debt is terminating all your credit cards; if you enjoy the convenient of cashless payment, a debit card can serves the same purpose.

Benefits of Debt Consolidation Loan

A debt consolidation loan can help you to have a debt relief from your overwhelming debt issue. If your monthly debt payment has exceeded your financial affordability, a lower interest rate debt consolidation loan with a lightly longer repayment term can help you to lower your month repayment and bring your overdue debt to current status, saving your from additional finance charges.

If you want to get rid of debt, you need to be able to manage it properly; a debt consolidation loan allows you to combine all your debts into one for better debt management while you are working your way out of debt.

There are many cheap debt consolidation loans available due to the market competitive between lenders, you may find a good deal among them; Ask as many lenders as possible to send you their debt consolidation loan’s details and carefully review each and every one of them before you finalize your choice.

Summary

A debt consolidation loan is a good option to get your debt into a control level while working out of it. You must be smart enough to utilize the benefits of debt consolidation loan in helping your to solve your debt problem and avoiding the potential risks of debt consolidation loan that may cause you into deeper debt issue.

Alternative Financing for Wholesale Produce Distributors

Equipment Financing/Leasing

One avenue is equipment financing/leasing. Equipment lessors help small and medium size businesses obtain equipment financing and equipment leasing when it is not available to them through their local community bank.

The goal for a distributor of wholesale produce is to find a leasing company that can help with all of their financing needs. Some financiers look at companies with good credit while some look at companies with bad credit. Some financiers look strictly at companies with very high revenue (10 million or more). Other financiers focus on small ticket transaction with equipment costs below $100,000.

Financiers can finance equipment costing as low as 1000.00 and up to 1 million. Businesses should look for competitive lease rates and shop for equipment lines of credit, sale-leasebacks & credit application programs. Take the opportunity to get a lease quote the next time you’re in the market.

Merchant Cash Advance

It is not very typical of wholesale distributors of produce to accept debit or credit from their merchants even though it is an option. However, their merchants need money to buy the produce. Merchants can do merchant cash advances to buy your produce, which will increase your sales.

Factoring/Accounts Receivable Financing & Purchase Order Financing

One thing is certain when it comes to factoring or purchase order financing for wholesale distributors of produce: The simpler the transaction is the better because PACA comes into play. Each individual deal is looked at on a case-by-case basis.

Is PACA a Problem? Answer: The process has to be unraveled to the grower.

Factors and P.O. financers do not lend on inventory. Let’s assume that a distributor of produce is selling to a couple local supermarkets. The accounts receivable usually turns very quickly because produce is a perishable item. However, it depends on where the produce distributor is actually sourcing. If the sourcing is done with a larger distributor there probably won’t be an issue for accounts receivable financing and/or purchase order financing. However, if the sourcing is done through the growers directly, the financing has to be done more carefully.

An even better scenario is when a value-add is involved. Example: Somebody is buying green, red and yellow bell peppers from a variety of growers. They’re packaging these items up and then selling them as packaged items. Sometimes that value added process of packaging it, bulking it and then selling it will be enough for the factor or P.O. financer to look at favorably. The distributor has provided enough value-add or altered the product enough where PACA does not necessarily apply.

Another example might be a distributor of produce taking the product and cutting it up and then packaging it and then distributing it. There could be potential here because the distributor could be selling the product to large supermarket chains – so in other words the debtors could very well be very good. How they source the product will have an impact and what they do with the product after they source it will have an impact. This is the part that the factor or P.O. financer will never know until they look at the deal and this is why individual cases are touch and go.

What can be done under a purchase order program?

P.O. financers like to finance finished goods being dropped shipped to an end customer. They are better at providing financing when there is a single customer and a single supplier.

Let’s say a produce distributor has a bunch of orders and sometimes there are problems financing the product. The P.O. Financer will want someone who has a big order (at least $50,000.00 or more) from a major supermarket. The P.O. financer will want to hear something like this from the produce distributor: ” I buy all the product I need from one grower all at once that I can have hauled over to the supermarket and I don’t ever touch the product. I am not going to take it into my warehouse and I am not going to do anything to it like wash it or package it. The only thing I do is to obtain the order from the supermarket and I place the order with my grower and my grower drop ships it over to the supermarket. “

This is the ideal scenario for a P.O. financer. There is one supplier and one buyer and the distributor never touches the inventory. It is an automatic deal killer (for P.O. financing and not factoring) when the distributor touches the inventory. The P.O. financer will have paid the grower for the goods so the P.O. financer knows for sure the grower got paid and then the invoice is created. When this happens the P.O. financer might do the factoring as well or there might be another lender in place (either another factor or an asset-based lender). P.O. financing always comes with an exit strategy and it is always another lender or the company that did the P.O. financing who can then come in and factor the receivables.

The exit strategy is simple: When the goods are delivered the invoice is created and then someone has to pay back the purchase order facility. It is a little easier when the same company does the P.O. financing and the factoring because an inter-creditor agreement does not have to be made.

Sometimes P.O. financing can’t be done but factoring can be.

Let’s say the distributor buys from different growers and is carrying a bunch of different products. The distributor is going to warehouse it and deliver it based on the need for their clients. This would be ineligible for P.O. financing but not for factoring (P.O. Finance companies never want to finance goods that are going to be placed into their warehouse to build up inventory). The factor will consider that the distributor is buying the goods from different growers. Factors know that if growers don’t get paid it is like a mechanics lien for a contractor. A lien can be put on the receivable all the way up to the end buyer so anyone caught in the middle does not have any rights or claims.

The idea is to make sure that the suppliers are being paid because PACA was created to protect the farmers/growers in the United States. Further, if the supplier is not the end grower then the financer will not have any way to know if the end grower gets paid.

Example: A fresh fruit distributor is buying a big inventory. Some of the inventory is converted into fruit cups/cocktails. They’re cutting up and packaging the fruit as fruit juice and family packs and selling the product to a large supermarket. In other words they have almost altered the product completely. Factoring can be considered for this type of scenario. The product has been altered but it is still fresh fruit and the distributor has provided a value-add.

The idea for factoring/P.O. Financing is to get into the nuts and bolts of every single deal to ascertain if it is doable.