What are Receivable Factoring Companies?

What are Receivable Factoring Companies
Receivable Factoring Companies


Receivable factoring companies offer money in cash for your account receivables invoices, which they collect for you and from which they get a certain percentage as fee. Choosing among them to solve your cash flow situation will depend upon a number of factors and these are discussed below.

How Much Do They Charge For Their Services?

Receivable factoring companies have their own ways of charging for their services. There are generally two ways in which they earn their money:

  1. The first is the percentage of the total amount of the receivables’ total face value. For example, when if the total amount of the accounts receivables is $100,000 then you may get up to $90,000 right away instead of waiting for a few weeks or months to get it all. Some companies may offer a larger percentage for your share than their competitors.
  2. Each transaction often comes with its service fee, which may range from 0.5% to 3% of the bill. This is why it is preferable to turn over only your largest accounts instead of a lot of smaller ones. If you have a single account which owes your company $100,000 then the service fee may be nearer to 0.5%. But if that total is comprised of many little accounts, then the service fee for each may be nearer to 3% because they increase the workload of the factoring company.

How Do They Treat You As A Customer?

Once you have entered into an agreement with a receivable factoring company, at some point you will have questions for them to answer while they process the billing. The way they deal with you is important, and the best receivable factoring companies make sure that you have plenty of ways to communicate with them. They also make sure that they reply to your queries promptly and with all the necessary information you require.

So if a factoring company merely gives an email address as a way to contact them, don’t be surprised if they are tardy when they respond to your questions. This lack of communication increases the chance of misunderstanding between the two parties later on.

How Do They Interact With Your Customers?

Since a factoring company will be the one to handle the collections of the bills that are due to your company, the manner in which the factoring company interacts with your customers can affect your business as well. In a way, they represent you in the eyes of your customers. And if they are overbearing and discourteous when they go about collecting the money from them, the factoring company won’t be alone in getting the blame. In fact, the customers may place most or all of the blame on your business. After all, you chose them to collect the bills for you.

So get some feedback as to how receivable factoring companies do their collecting, and how professional they are when dealing with customers. It may be better for the future of your company to pay just a little more in terms of interest and service fees to ensure that you and your customers are treated properly.