Important Points to Remember When Choosing Your Invoice Factoring Company
Now that you’ve decided that Invoice Factoring would be a solid business decision for your company, the next step is to find the perfect Invoice Factoring company for you. Once you start looking you’ll discover that there are many Invoice Factoring companies (or ‘factors’) in the marketplace, and this is the perfect situation for you as a potential Invoice Factoring client.
But it can also be confusing, because now you have to find the right Invoice Factoring company to suit your business’s needs. To assist you in making the right decision we’ve listed below the main issues that should be considered when choosing a Invoice Factoring company.
Invoice Factoring Fees and Terms
Before making your final decision and entering into a Invoice Factoring agreement, check out the fees applicable and the terms of the contract. Both of these can vary a lot, depending on the Invoice Factoring company and the industry it's serving. When you start your research you’ll discover that some Invoice Factoring companies charge a flat fee: this fee is, in effect, a certain percentage of the total value of the customer invoices you sell to them; whilst others have additional charges to cover the general costs of doing business – such as, money transfers, shipping, collateral, and so on.
Ensure that the Invoice Factoring company you’re considering working with is transparent and upfront with you about its fee structure. In addition, you may want to consider a long term contract with your Invoice Factoring company if it includes flexible rates or a price break. If you’re receiving competitive offers from other Invoice Factoring companies or you have increased Invoice Factoring volume, you’ll discover that many Invoice Factoring companies will be prepared to adjust their rates. A one year contract is the industry standard for most Invoice Factoring agreements. Generally, unless you give your factor a 60 or 90 day notice, your Invoice Factoring contract will automatically renew.
What’s the Difference between Recourse and Non Recourse Invoice Factoring?
It’s important that you understand the difference between recourse and non recourse Invoice Factoring prior to choosing your Invoice Factoring company, because you need to know what the best fit would be for your company and your customers. So, with non recourse Invoice Factoring, all of the credit risks for the collection of the invoice belong to the Invoice Factoring company; while recourse Invoice Factoring means that, with you being the client, you’ll ultimately be responsible if the Invoice Factoring company is unable to collect payment on your customers’ invoices.
There are benefits to recourse Invoice Factoring, and perhaps the main benefit is that it’s less expensive than non recourse Invoice Factoring. If you have a recourse agreement and the customer defaults on payment, it doesn’t automatically mean that you’ll be asked to settle the debt out of pocket. Generally, what happens is that the factor will hold back a portion of either future cash advances or payments being held in reserve, with the money being placed in an escrow account awaiting settlement of the debt.
Our suggestion is that you find a Invoice Factoring company that offers both recourse and non recourse Invoice Factoring, because not all of your customers will be good candidates for recourse Invoice Factoring. An experienced Invoice Factoring company working with a strong credit team can also behelpful in ensuring you’re working with good customers: this will relieve some of the pressure of being stuck with bad debt.
Experience and Capital: The Two PreRequisites
Your company should be looking for a Invoice Factoring company with experience in your industry, including the capital structure to fund your business as it continues to grow. Once you start researching Invoice Factoring companies you’ll discover that there are a lot to choose from; however, many of these are recent start ups with limited experience. Prior to signing any Invoice Factoring agreement, do your research and look into the history and background of the Invoice Factoring company concerned, especially its ability to provide financial services in your area of expertise.
The idea with Invoice Factoring is that, as your company grows, the funding of your customer invoices will grow with you.Research the Invoice Factoring company’s client base and their capital structure. What’s a typical account size? What’s the Invoice Factoring volume of their largest client? Is the Invoice Factoring company limited to how many debtors it can handle? In general, Invoice Factoring companies that have been serving your industry for many years will usually be able to offer your business the best deal.
Additional Invoice Factoring Services
There are many more benefits to Invoice Factoring than simply increasing your company’s cash flow. Because the Invoice Factoring company will be handling the collection of your customer’s invoices, your company will be saving time and resources. A good Invoice Factoring company will also be able to evaluate companies in your industry and provide credit information. In short, your factor will ensure that you experience excellent customer service. You’ll be matched with your own representative who’ll be able to address any questions or concerns you may have about your Invoice Factoring account.
So, when researching Invoice Factoring companies, look for a factor who not only offers additional products but provides a high level of customer service that will help your business grow by assisting you in making smart business decisions.