If you do an online search for factoring companies, you’ll quickly realize there are thousands of results. How do you ensure you’re choosing the best factoring company? Here are a few items to consider when selecting the best factoring company for your business.
If you’re going to trust a company to make sure you get paid on time, make sure it is a credible and well-trusted company. One quick way to help ensure this is to look at the factoring company’s Google and Facebook reviews. Keep in mind; almost every company will have some negative reviews. It is more important to make sure that the positive reviews outweigh the negative ones. Since you’re bound to come across negative reviews, take a look at how the factor responded to it, or if they did at all.
When you choose to partner with a factoring company, they should be just that, your partner. Many factoring companies provided additional back-office support. Some of these services may include, credit and risk analysis, treasury management, accounts receivable management, and collections.
Not only is it important for the factoring company to have the experience, but it is equally important for them to have experience in your industry. A factoring company that has experience in your industry can help ensure that you get quickly paid as they know the invoicing requirements and many major players in your industry.
Factoring companies offer recourse and non-recourse factoring programs, with the majority of them being recourse factoring.
With recourse factoring, the client is still ultimately liable for the invoice. Any invoice that goes unpaid or is in dispute will be sold back or “recoursed” back to the factoring client. Because the risk is minimized, the advance rates are generally higher, and factoring fees are lower when compared with non-recourse.
Non-recourse factoring is essentially the opposite of recourse factoring. The factoring company assumes full liability for the invoice. Because of this, your advance rates will generally be lower, and your factoring fees will be higher. Factoring companies that offer non-recourse usually require your customer to have a long, extensive history of prompt payments for the invoices to be purchased.
If you’re in need of quick cash to meet your business obligations, be sure to ask how long the setup process takes. Many factoring companies can get this done in a matter of a few days, but it’s good to ask to ensure you have the working capital when you need it.
Some factoring companies offer to fund every day, while others will fund you only once a week. Whether you need cash on a daily basis or a weekly basis, be sure to check with your potential factor to ensure you’ll get paid on your invoices when you need it.
Factoring companies will charge a factoring fee for their services. This fee varies based on the same reasons advance rates vary. Be sure to check your factoring agreement for any additional fees or hidden costs.
Contracts for factoring companies can be as short as a one-time deal or as long as a two-year agreement or even more. Check on the length of your agreement and find out if there any penalties for ending it early.
As your business grows, you want to be sure to select a factoring company that can provide more working capital to keep up with your business demands.
Above are just a few of the items you should carefully consider when selecting a factoring company. It is important to read your contract in detail and understand it before signing it to ensure it meets your business needs.
Scale Funding has provided factoring services to companies across North America since 1994. Our easy-to-setup factoring programs allow for same-day cash advances on your invoices. We’ve worked with a variety of industries including oilfield services, trucking and freight, staffing agencies, telecom, and more. We offer back-office support for our clients including credit services, collections, and treasury services at no extra charge.