Business owners are increasingly recognizing the benefits of factoring as an easy, reliable funding source. However, not all factoring companies are the same, and some of these differences can be costly. Below is some more information on what to ask when choosing a factoring company to fulfill a firm’s working capital needs.
How Long Has the Company Been in Business?
Many of today’s factors are new to the market. As in other industries, professional expertise is developed over time. Before working with a factor, verify its financial services history and find out whether it belongs to industry associations. Membership in these associations signifies that a factor does business in a fair and ethical way.
What’s the Fee Structure?
While certain firms charge a flat fee that’s based on the total value of the invoices to be factored, other firms have different fee structures. Some add charges to cover operational or administrative costs, software and other transactional expenses. Although these charges are legitimate in most cases, it’s important to choose a factor with a transparent fee structure.
What are the Terms?
Clients should choose factors who can tailor working agreements to fit their needs. The standard agreement is for a one-year term with automatic renewal unless the client provides 60 or 90 days’ notice of termination. Find out whether there’s a minimum amount for outstanding invoices, and determine if there’s a maximum funding amount. Fast access to working capital is one of the benefits of using a factoring company, and most companies can execute transactions within one to two business days, if not sooner.
Which Support Services are Available?
Factors vary in the level of customer support and services offered. Along with providing multilingual customer service, the best factoring companies can handle a full line of administrative and related services like credit analysis, accounting reports and collections.
Finding working capital can be difficult, but choosing a factoring company doesn’t have to be. Once a client is satisfied with the answers to these questions, the only thing they have to find out is which information they’ll have to provide before the company gets started on its paperwork.