If you are considering invoice factoring (aka factoring receivables) to quickly secure capital for your growing business, it is important to shop around to find the best invoice factoring company for your needs. With so many options out there, it can be hard to narrow your choice and make a selection. One place to start is by searching for factoring companies near me or looking for companies that focus specifically on providing invoice factoring to different factoring industries. If you want to go more in depth to find the right company to work with, this shopping guide can help.
General or Industry-Specific Factoring Company?
One way to begin to taper your search is to sort and review by industry. Do you want a factoring company that is a generalist company, one that provides invoice factoring services to most all industries? Or do you want a specialist firm, one that only serves your industry and related segments? For instance there are a large amount of companies that taylor their services to meet the needs of freght bill factoring, oil and gas factoring companies or even just payroll factoring when you need to pay staff and have outstanding accounts receivables.
The advantage of working with all-purpose factoring companies is that they are generally able to offer financing for high-value invoices such as those valued at $350,000 per month or higher. Some of these factoring companies may offer a discount or lower rate for reoccurring, high-volume factoring. If this description fits your company, then you might be better off choosing a generalist financing company.
The advantage of partnering with an industry-specific company is that they know your business inside and out. They are familiar with the typical challenges of the industry whether they are slow payment issues, international issues, non-payment issues and more. If you are new to your industry, an invoice factoring company may be able to provide you with some solid advice and support regarding long-term planning related to factoring accounts receivables.
Specialty firms might cost more though this isn’t always the case. They might also be more willing to work with you if you need monthly capital but are new and have low volume invoice factoring needs. Many factoring companies that specialize in trucking or freight factoring, for instance, are willing to partner with very new businesses including those with low volume or low dollar amount invoicing.
Recourse vs. Non-recourse Factoring
Another important point to consider when shopping around for an invoice factoring company is whether or not that firm offers recourse or non-recourse factoring. Some smaller or new-to-the-scene invoice factoring companies only offer recourse factoring because it is less risky than non-recourse financing.
With resource factoring, your business is ultimately responsible for collecting the debt should the client fail to remit payment. The factoring company will not assume the debt as it would for non-recourse factoring. This is an important thing to consider if you believe that there is a risk of non payment on your outstanding receivables.
If you are comfortable with that arrangement, you can search for a company that offers recourse financing to reduce your overall factoring receivables’ expenses. However, if you require a non-recourse agreement, make sure you choose a factor that offers this as not all invoice factoring companies do. Avoid making assumptions!
Invoice Factoring, With or Without the Frills
When scouting for an invoice factoring company, consider how many extras you need. A full-service firm that offers back-office accounts receivable and collections’ services will likely cost you more than an invoice discounting firm that doesn’t offer these add-ons.
Other extras that may be important to your business include whether or not the factoring company offers an online account management system. These systems allow you to access your account at any time so you can see exactly when invoices have been received and paid.
More than offering complete transparency, such firms generally process payments faster because they make use of digital technologies. Other old-school invoice factoring firms may not offer these conveniences but may instead offer a more hands-on, face-to-face customer service approach.
Local, Regional, National or International
In this global economy it is not uncommon for businesses to have customers located all over the world. Yet this may present challenges for invoice factoring companies if they don’t work with international firms. If you plan on using an international client for factoring invoices, make sure you partner up with an invoice factoring company that can process such transactions. This is especially crucial for those businesses in manufacturing, distribution, wholesaling, business services, textiles & apparel, and more.
If your company primarily or exclusively has customers in the same city, state or region, it may be to your advantage to partner with a local invoice factoring company. Such a firm may be able to offer lower rates or discounts and may be able to present you with new business opportunities. Trucking or freight factoring, for instance, tends to be regionally focused with concentration of factoring companies in Texas, New Jersey and California.
By going with an invoice factoring firm in your part of the country, you may get the heads up on better routes or loads that need to be shipped. These freight factoring companies can also offer fuel cards for local pumping stations. This way your payment is deposited directly on the fuel card allowing for fast fill-ups. These little extras, however, might not be offered by national invoice factoring companies because they might lack the local relationships or contacts.
Invoice Factoring Companies’ Fees and Rates
Talking about costs and charges is never fun; nonetheless, such considerations play a big role in narrowing your choice. Costs for factoring invoices are calculated in various ways with each firm offering different rates, fees, and charges.
Moreover, some factoring companies will only work with businesses that have minimum amounts such as $50,000 per month or even $250,000 per month. You will want to assess the total invoice amount you plan to use for factoring receivables and choose a factoring company that aligns with that.
Some companies will offer a discount if you have a high volume factoring amount. If this matches your business, you may want to look for that when choosing a factoring company to reduce expenses. On the other hands, some small freight factoring businesses charge per invoice while others charge a flat fee regardless of the number of invoices your business has. Regardless of the rate plan, you will want to shop around to find the best price point for your situation.
It is worth mentioning that the longer the invoice factoring company has to wait to collection invoice payment from the client, the more it will cost you. This is true for almost all such financing companies. So if possible, you will want to choose a client that has a strong record of paying its bills on time or even early.
Its also worth mentioning the choice between an ongoing whole turnover style arrangement, or the new selective approach, where you can pick and choose invoices to have funded without being tied into a contract to use the service on an ongoing basis.