Nowadays, quite a few mainstream finance publications and websites have finally accepted the fact that invoice factoring can be hugely beneficial for small businesses. For example, the Fox Business website has published an article that discusses the loan programs available through the Small Business Administration, and it suggests that invoice factoring may be your better alternative if you need the cash quickly.
But how do you know if a particular factoring company can be the best fit for your company? One way of doing this is to ask for references so you can use the experience of their former clients as your factoring business studies.
- Choose references that are involved in your own industry. Different industries have different needs and business processes, so it doesn’t really make sense to study a factoring service for a janitorial company when you’re a distributor in the apparel industry. Those are two wildly different industries.
Instead, make sure that the references you get are in your own industry. If you can’t get these references, then at least you know that the factor you’ve approached to help you has no or very little experience in your industry.
By getting these references, you can then gauge the level of experience the factoring company has, and you’ll have a better sense of how they can set up an efficient arrangement for you.
- Analyze the entire process. Since you’re using these references for your very own factoring business studies, take note of the particulars of each case. How much advance payment did the other companies get, and how quickly did they get it? Were the clients forced to assign factoring for certain invoices, or could you pick and choose what you can put up for factoring? Were there any lock down contracts in place, which required you to use factoring for a certain amount of time? Get the answers for all these questions, because they could apply to you too.
- How much will the arrangement cost you? Everyone says that invoice factoring can cost you a whole lot more than a traditional loan from a bank. But the question you need to ask is precisely how much more? The references you get can give you a clearer idea of what you’ll be paying for the opportunity to get the funding you need much more quickly.
- Are there any extra services available for your company? Some factoring services offer additional benefits than just simple funding. For example, they can handle the job of collecting payments for you, which then saves you the burden of having to set up a department dedicated to collecting payments from your customers. Others may give you detailed reports on the reputation of potential customers, so you’ll know which ones you can offer credit to. Some factoring companies even offer to shoulder the risk if your customer doesn’t pay the invoice.
Like any other business studies, factoring business studies can clearly illustrate the details you can expect, as well as the potential benefits and liabilities. Study them well, and you can get the right arrangement with the right factoring company that can fit your needs to a T.