Industry type is the most important consideration when looking for an accounts receivable factoring company. Start your search by looking for factoring companies that serve your particular industry. It’s common for factoring companies to serve industries such as manufacturing, distribution, staffing, and business services. But if your business involves construction, trucking, healthcare, exports or government, then look for an accounts receivable factoring company that specializes in those industries.
All accounts receivable 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 $2,000,000 in accounts receivables factoring, then look for a factoring company that provides factoring services for $2,000,000 and higher (give yourself room to grow). If your business needs less than $25,000 (and you don’t expect growth anytime soon) 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 in your business. See if the factoring 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 services. Carefully discuss factoring rates with the factoring company. Your average collection days determines whether you should get a flat rate or a periodic rate. Calculate the total cost of factoring services based on the average collection days for your customers.
Be careful if a factoring company promotes an extremely low rate like 0.95%. Some factoring companies use advertised rates just to get your attention. These rates may only be good for the first 10 or 15 days of an outstanding invoice or the rate may only apply to businesses with very high sales volume and triple-A credit customers.
Factoring companies may charge additional or hidden fees. These fees include UCC 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. It’s common for factoring companies to charge bank wire transfer fees and ACH fees.
Some factoring companies charge a monthly minimum fee if you don’t factor a certain volume of invoices each month. This is normal if you negotiate a low rate based on expected volumes. But if your business experiences seasonal revenues or sporadic sales then you should avoid minimum fees.
Don’t get locked into a long-term contract. Avoid invoice factoring companies that required you sign a contract for more than one year. If you become dissatisfied for any reason and you decide to leave, they may charge you a large cancellation fee. You can find invoice factoring companies that offer contracts 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 an accounts receivable factoring company in your area. If you’re business is in a special industry or you have unique factoring needs, then you’ll need to perform a nationwide search. It’s common for businesses to use an accounts receivable factoring company in another city or state. Contact FactoringClub for additional assistance at 866-748-7111