If you've decided to make use of invoice factoring you might be surprised by the number of factoring companies that are out there. Before you agree to work with any one company it's important to learn how to select the best factoring finance company for your business. Here are six areas you'll want to consider.
1. What is the Company's Typical Client Size?
Despite claims that a factoring company can work with a business of any size most tend to specialize in invoices of a certain range. Ask the firm about their typical client size before signing the contract. Make sure they're familiar with managing the amount of invoices you typically bill.
2. Are There Required Monthly Minimums?
Many firms prefer to work with businesses that agree to factor a set amount of invoices each month. It's important to find this out beforehand so that you don't overcommit yourself. Read the contract carefully and if this provision isn't mentioned ask the representative about it.
3. Does the Company Offer a Non-Recourse Agreement?
Comparatively few factoring firms offer non-recourse agreements because they require the factoring company to take the loss if the client decides not to pay. But it's worth your time to find a company that offers this provision especially if you're unsure about your customer's credit.
4. How Long Will the Contract Last?
A lot of factoring agreements operate on a one-year minimum agreement which means that you'll have to continue using the company each month for at least one year. If you're only looking to factor invoices for a couple of months ask if the company offers flexible contracts that allow you to walk away when you're ready.
5. What is the Proposed Fee Structure?
Factoring fees often fluctuate depending on the amount of invoices you're factoring each month. Generally, fees are smaller for companies that factor large amounts of invoices than for those with small amounts of invoices. Ask about the fees before you agree to the contract terms.
6. How Good is the Customer Service?
Since the factoring company assumes responsibility for collecting on the invoices you might have to communicate with them regularly for some time after you receive the money. A firm with a good customer service record can make it easier for you to continue working with them.
Before you settle on a factoring company make sure that you know how to select the best invoice factoring company for your business. Taking the time to ask these important questions can save you lots of headaches later on.
