Choosing a factoring company
Whether you turn to a dedicated factoring company or a national bank with a factoring department, choosing the right factoring company to work with is important.
Look for a factoring company that understands your business and can provide the personal attention you need. The right provider will address any concerns you have and make sure the entire process is seamless.
What to look for in a factoring company
In addition to considering rates, there are many points to consider when choosing a factoring service.
Always speak with a potential factor before agreeing to work with one — either in person or by phone. Since the factor will have direct contact with your customers, you want to ensure the factor is courteous and professional in their communications. Ask to see sample letters or emails they send clients, or listen in on a phone call between the factor and a client.
Also, make sure the factoring company will handle most of the invoices you want factored. Most quality factoring companies boast a high rate of success obtaining payment from a business' clients. This is because they review the invoices carefully and only accept the ones they can validate. To ensure a factor can collect the majority of your invoices, provide a range of samples for them to review. Otherwise, you risk signing up with a factor who won't be able to provide the level of cash flow you want.
To iron out problems that inevitably arise, find out what level of customer service they offer to help resolve problems. Do they provide telephone support and in-person meetings, e-mail help and live chat, or a combination of services? Choose the factoring company that offers multiple ways to reliably address concerns or answers questions.
Consider the size and experience of the factoring company. Businesses that offer factoring among other services may be less expensive, but may not offer the same success rates and experience as a dedicated factoring company. Also, if a company has offered factoring services for many years, it's usually a strong indicator that they provide a reputable service to customers.
As with any major business purchase, make sure you ask for a list of references before you do business with them. It's preferable to have references in an industry like yours, but since factoring practices are similar in most businesses, you should be able to get valuable insight into the factor's qualifications. Make sure to ask such questions as:
- Were they able to quickly process your funding requests?
- Was the approval process simple? How long did it take?
- Was the company easily accessible through phone and email?
- Did the factor perform all of the responsibilities noted in the contract?
- How long did it take before you received funds?
- If you had a problem with your account, what did they do to resolve it?
- How did your clients react to working with the factor? Did the factor handle them appropriately?
If you're unsure which factoring company to choose, a broker works with several dedicated factors across several businesses of all sizes. A broker will assess different companies and match you with one that best fits for your business. They also keep a close watch on factors that may charge exorbitant fees or regularly upset customers so they don't match you with them. You may pay a little extra on the initial fee, but it may be worth the investment if you need to find the best factoring solution quickly.
However, you don't need a broker to find the best factor. If you have finance experts in-house, they may know the best source for factoring services without having to pay a broker to do it for you. Also, with a little due diligence, you can find a quality factor on your own.