Have you made the decision to use invoice factoring as a tool to raise working capital for your business? Invoice factoring involves selling accounts receivables invoices for cash. Invoice factoring is quickly becoming a popular method for businesses in any industry to obtain the funds needed to keep operations running smoothly all year round. But with its increase in popularity, more and more invoice factoring companies have opened their doors for business. This means it is becoming increasingly difficult for businesses to select the best possible invoice factoring company to utilize.
An invoice factoring company should only be selected after several factors are evaluated. All companies are not necessarily perfect matches for every business that is in need of accounts receivable factoring services. In fact, some factoring companies specialize in helping businesses that operate only within a narrow range of industries. A few of the most important factors to consider before signing a contract with a factoring company are: the experience level of the factoring company, the terms of the factoring company’s contract, and the reputation of the factoring company.
Be aware that there are an abundance of invoice factoring companies out there. Some are experienced and some are not. Some focus on helping businesses within certain industries and others offer accounts receivable factoring services to a broad range of sectors. Many have ironclad procedures that may not work well in your industry. To make sure you select the best match for your business, take time to consider the following before settling on the factoring company you will use.
Tips for Evaluating Invoice Factoring Companies:
How much is the factoring company going to charge you? It’s important to make sure you completely understand the fee structure of each invoice factoring company you are considering. Make sure to evaluate rates, fees, and anything else that might result in additional charges. Verbiage about extra fees and the possibility of additional chargers is sometimes included in the contract’s fine print. Also, remember that the least expensive invoice factoring company is not necessarily the best – and the most expensive is not necessarily the best either! Base your decision on which factoring company to hire after carefully considering all of your options, and don’t base your decision on cost alone.
When you talk with representatives at the invoice factoring companies you are considering, do you get a good vibe? If you are vetting factoring companies – and one returns your call immediately and the other takes a few days to respond to your inquiry, which one seems like it would be the most reliable from the get-go?
What are the terms of the contract? The terms of contract you are offered are extremely important. Make sure to evaluate whether the contract offers any flexibility. Does it require you to factor all of your accounts receivables, or will you have the ability to pick and choose which receivables you want to factor? Can you use the invoice factoring company’s services at certain times of year, or are you obligated to use their services year-round? Make sure to sign a contract that makes you feel comfortable and confident.
Will the factoring company be respectful of your client relationships? A potential problem with some factoring companies is that they will bother and annoy your clients. Find out if they make collection calls or send out notices when an invoice is a few days past due. A better approach would be to work with you when an unexpected problem comes up. Your clients’ goodwill is one of your most important assets.
Do the factoring companies you are evaluating have a good reputation? It is never advisable to hire a factoring company that has a sub-par reputation. Asking for testimonials from previous or current clients is helpful in the decision-making process.
How many years of experience do the factoring companies have? Experience matters. While the overall concept of accounts receivable financing is not overly complex, invoice factoring companies that have been in business for a significant period of time are often more successful when it comes to complex situations and unique industries.
Do the companies have experience in your industry? It’s important to evaluate invoice factoring companies that have a proven track record in your industry. If your company has unique billing requirements, you will want to find an invoice factoring company that understands it, and knows how to navigate effectively.
As you can see, choosing the right invoice factoring company is something that should only be done after careful consideration. You want to be sure you make the best possible choice. The decision to move forward with accounts receivable financing is a big step – and you want to partner with a company that is always looking out for your best interest. Evaluating more than a couple of invoice factoring companies before making a decision is not uncommon. Make the right decision by doing your research and understanding exactly how the world of accounts receivable financing operates.
Editor’s Note: Greg Curtiss is President of The Invoice Bankers. Mr. Curtiss previously was a lawyer and has passed the CPA exam. He has been in business for over 25 years. You can reach him by calling 303-740-7600 or 1-888-740-1750.