In order for factoring to be successful, it is important for a seller to find and work with the right factor. What does the ‘right factor’ look like? Well, that depends on the particular company.
Factoring companies will have different strengths, processes, services and weaknesses. A company looking to sell their accounts receivables will need to find the particular factoring company that best meets their needs. However, there are some common considerations that should be made. We will discuss some of them in this article.
Fees: It is important for a company looking to sell their invoices to understand the exact fees that will be charged by the factor and under what conditions they might be raised or lowered. Companies should also ask about charges outside of the discount fees.
Penalties: Under what conditions are penalties dolled out? This information is very important. The company selling their invoices will want to know what actions to avoid, less they be charged for penalties. This information should be in writing.
Reporting: The seller will want to know about the reporting practices of all potential factors. How often will updates or notifications of collections be given and what exactly will those reports include?
Service options: One thing that will separate factoring companies is what other value added services they are able to provide. Finding out exactly what these are and their costs is an important consideration when choosing a factor.
Experience: In many cases, it is best to go with a factoring company that is established and in every instance, reputable. It is important to work with companies that have been in business at least 10 years and are recognized within the factoring industry.
Choosing the right factoring company will largely determine the quality of your experience. If you pick the wrong one, like any funding source, the entire process can be extremely frustrating and may end up costing you big money in unforeseen fees and damaged customer relationships.
On the other hand, if you are able to find and work with a top notch factor, you are likely to have a much more positive experience. When picking a factor, you will need to consider their experience (generally more is better), their service options, fees and penalty policies and reporting practices.
Taking the time to learn as much as you can about a factor and performing your due diligence upfront can save your company both time and money.