It’s not always easy to find the best factoring company to cater to your financing needs. There are so many of them online, and taking the effort to choose the best one among them may take a bit of time. But one alternative is to contact a factoring broker who can enable you to choose a factoring company very quickly.
Pros of Factoring Brokers
There are several advantages of using the services of professional factoring brokers.
- Brokers can help you find a factoring company very quickly. You won’t have to go through a long list of factoring companies to deal with.
- Factoring brokers can explain the factoring process used by a factoring company in great detail. Brokers can describe what you can expect from the factoring service, and the factoring company can start setting up the deal more quickly.
- As the recipient of the funding, you don’t have to pay the factoring broker commission. The payment comes from the factor instead. Usually, this is 10 percent of the amount you pay to the factor in fees.
- Factoring brokers know which factors deal fairly with them. Some factoring companies take some money off the top of the fees first before they pay the percentage first. And if a factoring company deals unfairly with people who bring in clients, then they may also be more likely to deal with you unfairly as well.
Cons of Using Factoring Brokers
Factoring brokers want to make money, and sometimes this may be to your detriment. For example, typically a broker is paid the 10% as long as the factoring agreement is in place. So that may mean that the broker may want to find a factoring company that can serve you over a two year period (via a lock in contract), even though you only need the factoring for a few months.
The factoring broker also earns more in commission when the factor charges a bigger fee for their financing services. As such, they may get a factor that charges extravagant fees for your company, instead of a factor which offers more reasonable fees for its services.
Because brokers may want to earn more money from their clients, they may have minimum requirements for factoring services. For example, they may only lead you to factoring companies that require a 2-year locked-in period. The brokers may also only recommend factoring companies that charge 6% of the value of the accounts receivables as the fee, even though some factoring companies only charge 2% as a fee.
The quality of the factoring company chosen for you by a broker depends on what kind of broker you have in the first place. Some brokers prioritize offering the best service for their customers, so they pick the factors which offer the best services or the lowest rates. These brokers hope that by providing superior picks, clients may recommend their services to their other business contacts.
The other type of broker operates by trying to get the most money out of each deal. They prioritize their own profits and your needs come in second. This is the type of broker you should avoid.