Questions to Ask If You Want to Find the Best Factoring Company for You

In 2014, GE Capital was named the best factoring company by Global Trade Review. GE Capital lent $250 million a day to mid-market firms and offered across the border financing to help their customers achieve global growth.

But that doesn’t mean GE Capital is the best factoring company for you. After all, you may not have global aspirations, and you may even be too small to be considered a mid-market firm. Even other highly recommended factoring services may not suit your circumstances.

To find the best factoring company for you, you’ll need to ask factoring companies some important questions, and you better pay attention to their answers.

  1. How Long Have You Been in the Factoring Business?

You’ll likely get the most efficient services from the factors that have been in business for a long time. Experience counts, because too many things can go wrong and it’s too risky to just wing it.

But you also need to ask a prospective factor about their experience in your particular industry. That’s because each industry has its own SOPs. For example, factoring medical receivables involves dealing with insurance companies or credit card payments from patients, while export factoring involves dealing with foreign customers and foreign commercial codes.

You need a factor who already knows their way around your industry so that they can help you navigate the business terrain. You don’t want to waste time having to explain to a factor how things work in your business.

  1. What Are the Terms of the Financing?

In general, if you can get flexible terms that let you get as much funding as possible, you’re in good hands. Most factoring contracts last for a single year, but some may be longer. You need to ask how much you’ll have to pay if you terminate the funding.

You’ll also need to know how much you can get in advance (along with any conditions), the fees you need to pay, and the penalties should your customer pay late (or not at all).

It’s up to you to compare the rates, although you can get better terms with increased factoring volume. You can also ask about any other services they can provide, aside from collecting the payments and evaluating the credit of your customers.

But the rule here is that the best factoring companies will be upfront about their conditions and fees. There should be no hidden fees, so clarify every scenario that may cost you money.

  1. Can You Handle My Business Growth?

One of the reasons why you may agree to factor your receivables is so that your company can grow. So if your AR volume per month may total $100,000 now, in the future it may increase to $200,000 a month. Can your current factor handle that kind of volume?

Ask a potential factor about the size of their typical account, and inquire about the factoring volume of their largest client. That should give you an idea whether they can handle a possible business growth.

When you find the factor that gives the best answers to the above questions, you’ve found the best factoring company for your needs.