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.
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 promoting 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 may charger additional or hidden fees. Examples include UCC or filing fees, attorney fees, renewal fees, administration fees, credit check fees, lien search fees, facility fees, same-day funding fees, non-factored invoice processing fees, and monthly minimums. Make sure you know what fees the factoring company charges. Bank wire transfer fees and ACH fees are very common.
One type of fee that factoring companies may charge is a monthly minimum fee. You get charged a minimum fee if you don’t factor a certain amount of invoices each month. This is normal if your factoring company gives you significantly lower rate based on expected volumes. If your company has seasonal revenues or sporadic sales then try to avoid minimum fees.
Be cautious if a factoring company requires a contract over one year. You don’t want to get locked into an agreement then become dissatisfied for some reason and have to pay a cancellation fee to exit. It’s common for factoring companies to offer contracts that are one year or less. Many companies even provide month-to-month contracts.
If you feel that face-to-face relationships are important, then attempt to find a factoring company nearby. Some situations preclude hiring a close factoring company. If you’re business is in a special industry or you have specific factoring needs, then you’ll have to conduct a nationwide search for your factoring company. It’s very common for businesses to use a factoring company in another part of the country.
If you need help finding a factoring company – call Factoring Club today!
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