Considerations When Selecting Factoring Companies
The relationships that businesses develop with factoring companies can be very important. In fact it could be fair to say that they are crucial. This is because factoring companies and the way that they act can have an effect on everything from how easy it is to manage the finances of your business to the relationship you have with your customers.
If you get the relationship right with a factoring company it can transform your fortunes and build a stronger, better future.
If, on the other hand, it’s a choice that turns out to be a mistake it could lead to some very major problems which are complicated and expensive to resolve.
Therefore it’s vital that you have a good idea of the sorts of questions to ask and the areas to examine when looking into factoring companies and the service they will provide for your business.
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Considerations when speaking with factoring companies
Service levels
Factoring companies are, above all, service providers so it’s essential to learn as much as you can about the levels of service that they will provide. Will they make it simpler to run your business or complicate it? As they will also be dealing with your customers, will they do this as well as you would if you were collecting payment from them yourself? If you believe that a factoring company will fall short of your expectations it’s best not to use them.
Most importantly of all, if you select a lender with poor service this could delay the process of releasing cash from your invoices, which begs the question “what’s the point in using the service if you still have to wait for your money?”. Mitigate the risk of this by speaking with an independent broker who has experience in which lenders provide the best service.
Price
Using any factor is going to cost your business money and that is going to mean a reduced margin for you, However there is a great deal of variation in the costs you will pay depending on which factor you use and their particular terms. You should also take into account the proportion of each invoice which they will pay up front as this can also vary greatly from company to company. While the cheapest option might not always be the best, cost is a serious consideration.
Location
It can be helpful, but it’s not essential, to use a factoring company that is located near you. In the event that issues do arise it can often be much better to resolve them face to face. If your factor is located at the other end of the country this can be a time-consuming and expensive business. Geographical proximity can also help you to build a closer relationship generally.
Length of contract
Factoring companies can insist on contracts which tie you in for a long time and which are expensive to escape from if it becomes necessary so it’s a good idea to make sure exactly what the terms are from the outset.
Will the facility grow with you?
Hopefully using a factoring company will help your business to grow, but will the facility grow with you as your turnover increases. It would be wise to examine your potential growth and to confirm with any factoring company that they would still be able to help.
What’s their invoicing procedure?
It sounds basic, but it’s vital nonetheless. You will probably want to use a factor that follows your way of doing things to ensure as little disruption as possible for you and your customers.
Using a broker to choose factoring companies
It all may sound complex but it can be simplified at a stroke by using a broker like Touch Financial. Using in depth knowledge of the market and the features of individual factoring companies it can save a great deal of time and effort. It could even lead to exclusive offers and rates which would otherwise not be available. Touch Financial works with a panel of over 20 leading factoring companies on behalf of customers nationwide. What’s more, it’s a free service.
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Also in this section:
- A factoring brokers role
- How to find the best deal from a broker factoring company
- The difference between broker factoring and going direct
- Considerations when selecting factoring companies
- Company factoring UK - Which lender is right for you?
- The role of an invoice discounting broker
