9 Things to Consider When Choosing a Factoring Company

Choosing a factoring company isn’t necessarily complicated, but finding the right partner can set your business up for long-term success and ensure you receive maximum value from the relationship. Give us a few moments, and we’ll walk you through what to consider as you decide.

1. Industry Expertise

Factoring services can be thought of as an alternative to traditional business loans. The factoring company buys your unpaid invoices at a slight discount and provides you with immediate cash. Most businesses qualify because the creditworthiness of the business paying the invoice is weighed more heavily than other factors.

With that said, invoice factoring companies may work with a wide range of industries. Finding one with industry knowledge related to your business can make a huge difference in your relationship. For instance, a factoring company that routinely works in your industry will know which payment terms are standard and if the behavior of your clients is consistent with the sector. An industry insider will also be in a better position to accurately gauge the creditworthiness of your clients, so you’re offered the maximum amount at the lowest possible rate.

Someone who knows your industry also knows which solutions work for businesses like yours, so you receive funding that’s tailored to your needs. Some also offer industry-specific perks.

2. Scalability

Another important consideration when choosing a factoring company is whether they can grow with you. For example, you might only require spot factoring with invoices up to $100,000 now. In some industries, invoices exceed $500,000. If this is true for your industry, confirm that any invoice factoring company you’re considering can manage the largest invoice you might ever need to factor.

While you can technically change factoring companies later if needed, staying with a single provider will allow you to build a stronger relationship with them and the team supporting you.

3. Speed of Funding

The factoring process can be incredibly fast. Some factoring companies can even provide same-day funding. That’s incredibly helpful in situations where you need to cover payroll or manage an emergency, and your invoices aren’t getting paid quickly enough.

Always confirm when you’ll have access to funds and the accelerated funding terms. It’s also helpful to do some research here. For instance, if a company promises same-day funding and it’s important to you, read some reviews to make sure it really happens or check the contract to see if they have any kind of guarantee about the timeline.

4. Reputation and Longevity

Businesses that don’t keep their promises to clients or that don’t deliver on expectations don’t usually last long in the funding industry. Find out when the company was founded and explore its reputation online. Every company will have slip-ups from time to time, but a business built on service will have a strong reputation overall and a clear track record.

5. Additional Perks

Ask about perks if you’re trying to decide between two seemingly similar factoring companies. These are things that may help your business but aren’t necessarily tied to factoring or offered by all factoring companies. For example, some factoring companies that specialize in the trucking industry offer fuel discount cards and fuel advances.

6. Additional Services

Many factoring companies do much more than provide you with upfront cash on your outstanding invoices. For instance, some will perform client credit checks, so it’s easy to make informed decisions about who you work for and how much work you’re willing to perform without getting paid in advance. Some will prepare your invoices for you, and many will handle the collection process too.

It’s also worth noting that some factoring companies offer alternate forms of funding, such as asset-based lending, equipment leasing and financing, and commercial credit cards. It may be best to seek out a factoring company that provides these types of solutions if you’re running a small business with needs that will change as it grows.

7. Availability of Help

Customer service is a significant consideration when choosing a factoring company. Make sure you know who your personal point of contact is, whether they’re a dedicated account manager or a general service line. Ideally, you’ll also have a digital portal with 24/7 access. Some more experienced factoring companies allow you to manage your complete account from your portal, submit invoices, view reports, and more. That way, you can see what’s outstanding or accelerate payment whenever it’s most convenient for you.

8. Rates and Additional Fees

Factoring rates will differ quite a bit from one company to the next. Also, find out if there’s a setup fee to become established and the factoring fee when you request a cash advance.

Ask for a detailed list of any fees you might be charged. Sometimes you’ll find fees for credit checks, contract termination, and more when you get a list.

For those seeking the best options, reviewing the top 10 factoring companies can provide valuable insights into the fees, terms, and overall reputation of industry leaders. This helps ensure you find a partner that aligns with your business needs.

9. Additional Terms in Your Factoring Agreement

Before you sign anything, take a hard look at the factoring contract. Some key things to look for include:

• Flexible Payment Terms: Ensure your clients can continue taking advantage of the same payment terms you’ve been giving them.
• Monthly Minimum: Some factoring companies have minimum monthly volume requirements. If you don’t plan to leverage factoring all the time or you’re unsure of volume, ensure this isn’t part of your contract.
• Cancellation Clause: You may see 30-day cancellation clauses or similar. In some cases, these lock you into a long-term agreement if you don’t cancel in 30 days. Other times, it’s a stipulation that you need to provide the company with 30 days’ notice if you leave.

Get Help Choosing a Factoring Company

If you have more questions about how factoring works, download our detailed invoice factoring guide. If you’re ready to move forward with choosing a factoring company, request a complimentary rate quote.

FAQs on Choosing a Factoring Company