It’s easy enough to understand why many businesses today would choose to get funding from a factoring company. Often it’s because a bank won’t hand out a loan in the first place! But there are also a significant number of businesses that prefer getting funding from factoring company instead of bank loans. The funding comes much more quickly with factoring, and besides with factoring there’s no loan involved at all.
Choosing to go with factoring is one thing. But choosing a particular factoring company this 2015 is another. You have literally thousands of options and picking the right one can be a rather complicated task. But there are ways to simplify the process.
- Choose a factor that comes with recommendations from others in your industry. For example, if you’re running a medical clinic then you may have colleagues who also transact with factoring companies. They can give you a rundown on what it’s like to deal with their factors.
- Opt for one with extensive experience in your particular industry. This speeds up the process because these factors are already familiar with your SOPs and particular needs. You won’t have to waste time explaining how and why you do things. They are also often known by your customers as well, so the payment process becomes much simpler too.
- Check testimonials to see how they approach your customers when demanding payments. Some industries, such as construction or the garment industry, depend greatly on networking. A factor which is too rude or aggressive in its payment notification procedure may offend your customers and damage the congenial relationship you have with them.
- Inspect the rates. A factor advances a percentage of the value of the account receivable to you immediately. Then they forward the rest of the payment when the customer pays in full after taking their fees. You’ll need to know the percentage of the advance, because some advance only 70% of the value of the invoice while some may claim to advance up to 90%.
You also need to check how much they charge in fees for the funding, and what the penalties are if your customer pays late or not at all. Some factors offer smaller fees if an invoice is paid sooner.
Some factors may also be more stringent about the type of customer you serve. For example, one factor may not accept an invoice concerning a particular customer, while another factor may give you an advance on that invoice.
- Additional services. Many factors offer free credit checks on your customers, and this can be very helpful when you’re trying to decide if you’re going to offer credit to a particular new customer. Some factors offer a line of credit instead of giving you the advance in full. Other factors can even offer online account management services, so that you can oversee which of your customers are nearing their due dates, which ones have paid, and which customers are late.
Your factoring company choice can very well affect your entire operation. Make sure you choose well, and not just because you were attracted to their advertising copy.