4 Tips for Choosing a Factor Company

thumbs up in Choosing a Factor CompanyWhile factoring can be a great way for a business to raise money, it can also be a huge pain if a company chooses the wrong factor to work with. A bad factor company can cost a business a lot of money. This can even threaten the relationship between that business and their clients.  It is very important for a business to perform due diligence when choosing a factoring company. Even when a business is desperate for money, it is imperative that they carefully investigate not only the factor but their offer as well.

1) Look for a factoring firm that has has been in the business for more than 10 years.

Obviously, experience and time spent in the industry is important and reflects on how effective they have been with successfully helping businesses grow. Good factoring services should be strong financially so that they are able to buy invoices and/or purchase orders.   This financial strength comes with age and experience.

2) Does factoring company offer term contracts?

Factoring companies that provide term contracts will typically offer better rates and fee structures. This can potentially save a company a good amount of money.  There are some disadvantages to term contracts as well.   Just like how if a company finds that they are not pleased with the factor. For example, how they deal with their customers or because of a lack of adequate reporting, it can be difficult or expensive to get out of the contract.

3)  Does the factor service bulk receivables?

A factor may not pay back any of the money they receive until all of the invoices are collected, while others or will pay them back as they come in. The former is an example of bulking receivables.   It is best to be paid as the invoices are paid rather than having to wait until all of them come.  One late payment can drastically affect when a company receives its money.

4) What fees do the factoring company charge?

Factors that require service charges, large upfront fees, and additional monies should be avoided. It is very important to carefully comb through any proposal or contract prior to accepting or signing it so that a company does not find itself drowning in unexpected fees.

Working with an experienced factor with an outstanding reputation can help companies grow successfully while avoiding many potential pitfalls.   Those factors that are established and well respected in the industry will have upfront and clear fee structures and will not attempt to inundate businesses with hidden fees and charge orders.   Their reputation is important to them and to the success of their own business.   A good factor will work hard to maintain that reputation and live up to it.

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