How to Choose Among Factoring Companies

Once your company has decided to use a factoring company for accounts receivable financing, you really need to choose the right one. Making the wrong decision can have disastrous consequences for your company, and this can, not only negatively affect your current profit margins, but also cause some ripples in your company’s future transactions.

Here are some tangible hallmarks you should be looking for in factoring companies:


The best way to find information about a factoring company is to collect information from its previous and current clients. This should be more objective than the information provided by the people working for the factoring company.

The information you need to gather from the references should include the following:

  • The simplicity and ease (or lack thereof) of the application process, and the time it takes for the factoring company to approve the funding request;
  • The quality of support received from the factoring company;
  • The time period from the initial approval of the funding request to receiving the initial funding and the time required before the company received the remaining balance of the advance;
  • The reaction (complaints and comments) of the company’s customers regarding the factoring company;
  • Their willingness to use the services of the factoring company in the future.

Customer Support

For the best service, the factoring company should offer many kinds of support for their clients, such as telephone and email support, and face to face meetings. A factoring company that offers only email support may not be as supportive as those companies which offer many other avenues of communication. By offering several modes of communication, your company has a better chance of having its questions answered promptly, which can prevent or minimize the possibility of misunderstandings later on.

Factoring Company History

The length of time that a factoring company has been in the industry is also a very telling indication whether it is reputable or not. That a factoring company has stood for many years says that it has provided sound services for its clients, which is why it has very little difficulties in finding new clients. It is also vital that the factoring company should have a long history of providing their services to companies in your industry.

Although it is entirely possible that a newer factoring company can provide the same quality of service for your business, your company takes on more of a risk with a factoring company that has a much shorter history of service in the industry.

Of course, there are also intangible signs you may wish to look for, such as the personality and professionalism of the factoring company. After all, it is your company’s reputation at risk, and if you select a factoring company which deals rudely with your company’s customers then you may lose some customers.

You may even tarnish your company’s reputation and lose potential customers when word of the factoring company’s rudeness spreads, which is why it is crucial that you choose wisely among the many factoring companies offering their services.

Should You Choose Factoring Companies Over Banks?

By: Chris Lanchech

Factoring companies purchase accounts receivable from various businesses and will enable you to get immediate cash on-end to serve as resource for your day to day operations. Of course each time they lend you an amount it will depend mostly on the quality of your assets. However there have been accounts of people getting duped by fraudulent factoring companies and there have been factoring institutions cheated by fraudulent borrowers as well. With banks offering business loans and other credit options, why would factoring invoices be a better option?

Reason #1: Bigger Cash Out

The problem with getting financial assistance from a bank is that they normally give you only up to 60% upon payout. Some banks and credit institutions do purchase invoices and assets but they won’t pay you enough to get your cash flow back on track. With a factoring company, however, you can get as much as 75-80% right on day one. That is pretty much the same as saying you got paid for the job right on the same day you started working on it. It becomes even better if you factor multiple invoices at the same time.

Reason #2: Lower Costs

Credit unions and banks can charge a pretty hefty fee. You’ll see charges that can go all the way up from 4% to a whopping 12%. They can literally rob you of your profits. A factoring company will generally charge you less than 2%. This means you get to use your money and they still get to earn a little profit along the way. One of the best things about factoring invoices with dedicated companies is that they sometimes offer factor insurance. This means you won’t have to pay them the money in case your client defaults on his payment. Instead, they’ll give you the rest of the loan and will then chase after your client to get the money back.

Reason #3: Faster Processing
Your business may not be able to function until you get some funds to start with and the problem with banks is that the application and assessment procedures could last for weeks. The good thing about a factoring company is that the entire procedure only takes a few days. Usually it only takes three to five days and you’ll have the amount deposited to you. To make the process even faster, factoring invoices usually only requires you to fill out two pages of information. This is quite the opposite of applying for a business loan or factoring invoices with a credit union because that would require piles of paperwork and information.

The Verdict: Factoring Companies versus Banks and Credit Unions

Banks and credit unions can be an option especially if your business has good standing with them but remember what your company’s main focus is: profit. Profit is derived from steady cash flow and lower overhead costs. You can only attain these by having stable resources, less costs, and less time wasted. With all of these taken into consideration, your company can benefit more if you choose factoring companies instead of banks.