Industry type is the most important consideration when looking for a factoring company. Start your search by looking for factoring companies that serve your industry. It’s common for factoring companies to serve industries such as manufacturing, distribution, staffing, and service industries. However, if your business is in construction, trucking and freight, healthcare, international trade or government contracting, then look for a factoring company that specializes in your industry.
All factoring companies have minimum and maximum credit limits (or credit facilities). When searching for a factoring company, make sure your funding needs are within the factoring company’s credit range. If you need $50,000 in receivables factoring, then look for a factoring company that provides factoring services for $50,000 and higher. Give yourself room to grow. If your business needs less than $25,000 then look for a micro factoring company.
Find a factoring company that has good customer service and a solid reputation in the industry. Talk to a company representative and gauge their knowledge, transparency and interest. Determine if the company participates in factoring organizations such as the International Factoring Association (IFA) or the Commercial Finance Association (CFA). Contact us at FactoringClub for additional advice and assistance.
Know the real cost of factoring your invoices. Carefully discuss factoring rates with the factoring company. Calculate the total cost of factoring your invoices based on the average credit terms of your customers. Determine if a flat rate or periodic rate is best for your receivables. If you find a factoring company promotes an extremely low rate like 0.55%, then know that these low rates are purposefully to get your attention. Advertised rates may be good for only the first 15 days of an outstanding invoice or the rate may only apply to companies with extremely high volume and triple-A credit customers.
Factoring companies can charge additional or hidden fees. Examples of these fees include UCC or filing fees, attorney fees, renewal fees, administration fees, credit check fees, lien search fees, facility fees, same-day funding fees, or non-factored invoice processing fees. Bank wire transfer fees and ACH fees are very common.
Some factoring companies include a monthly minimum fee provision in your contract if you don’t factor a certain volume of invoices each month. This is normal if your factoring company negotiates a significantly lower rate based on expected volumes. But if your business experiences seasonal revenues or sporadic sales then be sure to avoid minimum fee provisions.
Don’t get locked into a long-term contract. Avoid factoring agreements with contract terms greater than one year. If you become dissatisfied for any reason then you may have to pay a large cancellation fee to leave the relationship. It’s common for factoring companies to offer contracts with terms of one year or less. Many factoring companies even provide month-to-month contracts.
If you feel that face-to-face relationships are important, then look for a factoring company in your area. Some situations prevent hiring a nearby factoring company. If you’re business is in a special industry or you have unique factoring needs, then you’ll need to conduct a nationwide search for your factoring company. It’s very common for businesses to use a factoring company in another city or state.