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What To Look For in a Factoring Company

What To Look For in a Factoring Company

Max 3 min read

Are you getting frustrated over delayed payments from customers? Factoring services can help by purchasing your invoices in exchange for a small fee. Still, your choice of factoring company will affect how efficient and profitable this financial solution will be for your business.

Overall, it’s important that you partner with a factor or factoring company that meets your financial needs. Take note that each factor offers varying rates, fees, and terms. This is why you should be meticulous before you sign up for their service.

In this blog post, we will guide you through the essential aspects you should look for in a factoring company. Read on and see if your preferred factor has the following qualifications.

What do factoring companies do?

Before we dive into our list of what you need to look for factor, let’s first discuss what factoring companies do.

Technically, the factoring business model works by purchasing your invoices for cash. Once the factor has ownership of your invoices, they will collect them from your client. After they collect, they will send you any remaining balance with their fees already deducted.

Through this, business owners like you don’t have to wait for 30 to 90 days for customers to pay. This problem is very common in various industries, especially government vendors and healthcare payors.

Take note that factoring can either be recourse or non-recourse. With recourse factoring, the factor may ask you to pay back the factored amount in case your client fails to pay.

The good thing is that most factors will exhaust all means before using the recourse clause on your contract. Also, they conduct a thorough credit check on your client before factoring the invoices.

Overall, if your business is suffering from delayed and long payment cycles, factoring would be a good solution. However, it’s important that you partner with a reliable factor for the best results.

How to choose a factoring company

Factoring for business can be a powerful tool to unlock your steady cash flow. But for that to happen, you need to find the right provider. Below, we listed some of the things you should look for when evaluating a factoring company:

1. Industry experience

The first thing you should check when choosing a factor is its industry experience. It’s best that you partner with a company that has factored invoices from projects similar to yours.

For example, if you’re a contractor, you should look for a company that specializes in construction factoring. This way, the factor understands the unique financial challenges of your business.

The same goes if you’re in the trucking industry. A factoring for trucking company can provide you with the best rates that match the size of your fleet.

Overall, you should check the portfolio of the factor you’re planning to hire. Also, ask how much they have factored or specific industries to have an idea of how sustainable their services are.

2. Good reputation

It’s extremely crucial that you scout for factors with a good industry reputation. Aside from ensuring a steady cash flow for your business when you need it, you’ll have good representatives for collections. The last thing you want is to lose customers or projects due to unprofessional collection methods.

For this, you need to look up the company online and read customer reviews. Check how successful their results are and what common issues their clients usually face while working with them.

If you want to skip the hassle of sifting through various companies, you can also ask friends or colleagues for referrals. Some of them might have worked with a factor before and can refer to a reliable option.

3. Excellent communication

Communication is critical when running a business, especially when talking about finances. This is why you should partner with a responsive, professional, and transparent factoring company. Make sure that they respond to your questions promptly.

Also, the factoring company should be fully transparent about the entire transaction. For example, here at Factoring Express, you’ll get a factoring company account where you can see all the documents, fees, and reports. You’ll know exactly how much you spent and how much you factored with us.

4. Reasonable rates and fees

Factors often use different pricing models. So before you sign up for their service, make sure that you assess their rates and fees against what your business can afford. Take note that in the long run, factoring fees will add up, and it can be substantial for your business.

For this, you should compare different companies and the rates they charge. Don’t hesitate to request proposals, so you can better gauge who has the best fee structure.

5. Flexible contract terms

Fluctuations can happen in your business, so it’s best to look for a factor that can offer flexible contract terms. This way, you can upscale or downsize their service based on your needs.

For example, Factoring Express doesn’t impose long-term contracts. This means you can factor in any eligible invoices you want and anytime you need it. Also, we don’t require minimums, so our service is fully flexible and you’re also free to cancel anytime.

Despite that, we don’t charge termination or dormancy fees. We’re like your partner on standby, ready whenever you need our help.

This way, you can alleviate financial strain on your business without adding up more liabilities to your books.

6. Sustainable factoring service

When looking for a factoring company, you should also consider the long run. Does the company have enough funding to keep up with your business growth? Or can they remain consistent as you increase the amount of your factored invoice?

The answers to these questions are crucial in ensuring an uninterrupted cash flow when you’re using factoring services. After all, factoring is meant to be a solution.

Also, a factor with sustainable funding will be your long-term partner. It can help you weather economic challenges like cash crunches and slumps.

Mistakes to avoid

If this is your first time working with a factoring company, you must be careful with costly mistakes. You should always avoid the following:

  • Rushing the decision. You shouldn’t settle on the first factor you’ll find. Always create a shortlist of options and compare their fee structure, contract terms, requirements, and so on. This way, you can find the best financial partner for your business.  
  • Focusing solely on cost. Although cost is a very important consideration, you shouldn’t fixate on it alone. Always consider the quality of service of the factor in relation to their fees. Sometimes, paying a little bit more can make a big difference for your business.
  • Ignoring contract terms. As a smart business owner, you should read all the terms on your contracts. Carefully review every clause and don’t hesitate to ask the factoring company your questions. Specifically, you’d want to spend time assessing their fees, notice periods, and potential hidden charges.
  • Neglecting customer service. A factor’s customer support is a reflection of their service. Delayed responses will affect your cash flow, which will snowball into a bigger issue for your business. A

Frequently Asked Questions

Is factoring receivables a good idea?

Factoring is a good solution if your business always deals with delayed payments and that leads to out-of-pocket expenses. For example, if you’re being forced to dig into your funds for employee salaries or supplier payments, you should consider factoring your pending invoices instead.

This way, you’ll receive the cash tied to your invoices right away. Also, you’ll be free from the responsibility of collecting the invoices since the factor will take over the burden.

However, you should also know that factoring comes with a fee. It’s important to assess its cost-effectiveness for your business before signing up.

Can you have two factoring companies?

Can you have more than one factoring company? The answer can both be yes and no.

Technically, you can work with two factors at the same time, but this will only complicate your finances. In the end, it will result in more work for your staff since they have to coordinate with two different parties.

Aside from that, some factoring companies explicitly indicate in their contract a clause that prevents you from working with another factor simultaneously. It’s a protection for the factoring company, so they won’t end up funding fraudulent invoices.

But on the upside, working with two factors at the same time can help you maximize good rates. Still, make sure that both factors agree with the setup.

How do factoring companies make money?

Factoring companies like us make money through the fees we charge for our service. We charge a discounted rate for the instant funding and collection of the invoice. Don’t worry because we charge as low as 1.99% — one of the lowest in the market.

Rest assured that we don’t charge hidden fees. Everything is transparent and indicated on your contract in detail.

Looking for a reliable factoring company?

If you’re looking for a factoring company you can count on, Factoring Express can help. We have expertise in factoring invoices from various sectors, including healthcare, transportation, contracting, merchandise, staffing, and more.

With us, you’ll enjoy a steady and predictable cash flow. Not only that, our terms are very flexible: no minimums, no long-term contracts, cancel anytime. If you’re interested, don’t hesitate to contact us today!


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