Tips to Choose the Best Factoring Company

Choosing the best factoring company is one of the most vital decisions you make for your business. You will be working with the factoring company for a while and your growth depends on that relationship. You cannot take this financial decision lightly.

Invoice factoring is selling your invoices (accounts receivables) to a third party or a factoring company to reduce debt and improve cash flow. Businesses that use invoice factoring see an immediate boost in cash flow. Independent finance providers or banks provide invoice factoring.

Invoice factoring services is a solution to cash flow problems. It provides short term capital by assigning and selling invoices to a factoring company or factor. The factoring companies usually give 70-90% of the invoice value in advance. Invoice factoring is an excellent option for businesses and companies that need access to cash quickly but are not able to secure a traditional bank loan.

There are several types of invoice factoring. In recourse factoring, the business or the company is liable to pay back and is responsible for any risks.

In non-recourse factoring, the factor or the factoring company is liable and responsible for unpaid invoices.

Another type of factoring is undisclosed or confidential factoring. The customer does not know about a third party or factoring arrangement.

Some other types of invoice factoring are advance factoring, maturing factoring, bank participation factoring, full factoring, domestic and cross-border factoring, suppliers guarantee factoring, etc. You need to have proper knowledge about which factoring would benefit your business.

Selecting the correct factoring company for your business should be done carefully. You also need to understand the terms and conditions of the factoring company you select.

Best factoring companies have several features. Here are some of the points you should consider while choosing the best factoring company.

WHAT KIND AND TYPES OF FACTORING DOES THE FACTORING COMPANY OFFER?

Many factoring companies offer recourse and non-recourse factoring. Some companies offer both of these factors. The terms and conditions will vary depending on the kind of factoring they would offer.

WHAT ALL INDUSTRIES DO THE FACTORING COMPANIES WORK WITH?

Many factoring companies state that they are comfortable working with any industry. But the best factoring companies usually specialize in one industry. Your business will grow best if you work with a factoring company that knows your industry properly. To know if they are aware of your industry, you must question the factoring company and see if the company is knowledgeable. You must also ask for customer references from the factoring company.

HOW ARE THEIR ADVANCE RATES LIKE?

Depending on your business and industry, advance rates generally range between 70%-95%. The transportation industry and staffing companies qualify for advance rates in the range of 90%-95%. Depending on the risks, most businesses in the construction business get up to 70% rates.

DOES THE FACTORING COMPANY HAVE MINIMUMS?

Some factoring companies offer plans with minimums, while other factoring companies offer plans with no minimums. A factoring minimum is an amount that you require to factor for a given period time. This could be a month, a quarter, or a year. You need to pay the difference if you factor less than the minimum charged by your factoring company. You can also use minimums as a negotiation to receive lower rates.

HOW QUICKLY CAN THE FACTORING COMPANY SET UP YOUR ACCOUNT?

Many factoring companies can set up your account in 3-5 business days. Bigger accounts can take a few more days to set up because it requires extra effort and diligence. Due to financial emergencies, if you need the money quickly, setting up an account should not be the most important concern when you choose and examine a factoring company.

WHAT KIND OF SERVICES DO THEY OFFER? AND ARE GOOD?

Most factoring companies advertise and claim that they offer the best services. You must ask for client references from the factoring companies to determine if they offer good services. You must take the time to check these references carefully.

HOW LONG HAVE THE FACTORING COMPANY BEEN IN BUSINESS?

This is one of the most important questions that you must ask the factoring company. The best factoring companies usually have been in business for more than a decade. This means that they have good experience to manage accounts under economic circumstances and problems. You cannot be best at something if you are new at it.

HOW ARE THE FACTORING COMPANIES FUNDED?

Your business needs to know how your factor is funded. Factoring companies that are poorly funded might have to stop funding your invoices all of a sudden and sometimes also cut your credit line.

HOW IS THE CUSTOMER SERVICE OF THE FACTORING COMPANY?

The factoring company that you choose must have a strong customer service. It is very important. Customer service is vital to you as a company owner. The factoring company should be efficient and fast. Customer service is not only important to you but also for your customers. The factoring company gets in touch with your customers, so you must find a factoring company that is well mannered and treats your clients with great respect. You must ask for company referrals and check client reviews to determine whether the factoring company has good customer service.

IS THE FACTORING COMPANY FLEXIBLE?

Make sure that you choose a factoring company that is flexible. Some factoring companies require payment penalties or monthly minimums, and long-term agreements. You must choose a factoring company that lets you select which invoices you want to factor and when. You should avoid terms and conditions in which you have to factor all invoices from a particular client. Some factoring companies take over your accounts receivable and become responsible for sending invoices and collecting payments. Many small business owners and operators prefer to have ownership over their client relationships and send their invoices by themselves.

Choosing the best factoring company can be tricky and complicated. But you need to be sure which factoring company will be helpful for your business. So, it becomes important to check and know everything about the factoring company you select.