Factoring Companies – What Other Services do they Provide?
Believe it or not, we hear the question “what else can a factoring company do for my business?” quite often. While this may seem like a strange question, the fact of the matter is that the competitive landscape within the invoice factoring industry has forced lenders to become more diverse with their product offerings. There once was a time when invoice factoring companies provided rapid access to working capital, but not much else. However, as this financial sector has expanded over the years, factoring fees have seen a substantial reduction while ancillary services have become increasingly necessary in order to earn and retain valuable business. So, back to the question at hand, what other services can the Best Factoring Companies provide to help their clients?
Many Factoring Companies also Provide Short Term Loans and Purchase Order Financing
While not all factors are capable of assisting their clients with additional financing, some factors are more than happy to provide short term loans for their clients in desperate situations. An Entrepreneur article by Levi King states:
“The Small Business American Dream Gap Report examined today’s economic landscape compared to a year ago and found that…20 percent of the small businesses surveyed said they had considered shutting down, primarily because of lack of growth or cash-flow issues.”
A perfect example of this problem is often seen with trucking companies that find themselves in need of additional capital when insurance or registration renewals arise. In these cases, working with a factoring partner that is willing to provide short term loans to keep the client in business is absolutely vital. These loans can often be executed within a matter of hours, without the need to set up an entirely new account with another lender.
Purchase order financing, also known as PO financing, is provided by certain invoice factoring firms who work with clients specializing in manufacturing and distribution. When these clients receive orders from their customers, but are forced to first acquire materials to complete the orders, purchase order financing provides the up-front capital needed to obtain the materials. This proves extremely helpful for clients who are focused on growth. By utilizing PO financing, the client is able to accept larger orders without the worry of whether or not they’ll be able to afford the materials. Then, as soon as the product is delivered to the customer, the factoring company will close out the purchase order loan by factoring the receivable associated with the order. It is all designed to be a seamless process.
All Factoring Service Firms Provide Collections and Credit Support
This is a no-brainer, if a factor does not provide collections or credit assistance, run the other way. Factoring companies must handle the collections process as they have purchased the receivable from the client. Collecting on the invoice is simply how the factor gets paid. However, this does not mean that all factors are created equal in the task of collections. It is important to work with a receivables factoring company that plays an active role in this process and maintains regular communication with their clients’ customers. Furthermore, the factor should maintain contact with their clients when any issues arise surrounding the collection of particular receivables. Sometimes, the simple act of asking the client to contact the customer can help resolve any delayed payments.
In order for the client to even have their customers approved for factoring in the first place, the lender must provide credit reporting functionality. Whether the client is on a recourse, or non-recourse, factoring arrangement, it is always necessary for all parties to have a complete picture of the customer’s credit worthiness. However, before entering into any relationship with a factoring company, it is important for the client to ask about credit reporting fees. Many companies will provide these services free of charge, but there are still some factors who will charge extra. It’s always important for the client to have an understanding of any additional charges they could potentially incur.
The Best Factoring Companies will Offer Excellent Customer Service and Flexibility
These two variables are obviously difficult to quantify. Therefore, it may be best to ask the invoice funding company some questions about customer service and flexibility prior to entering into any agreement. For example, on a recourse factoring program, what happens if the customer does not pay the invoice? Does the client have to pay the balance back immediately? Or, will the funding source work with the client over a period of time to collect the outstanding balance? Another question is whether each client has their own account manager, or if they must call into a general 800 number and speak with the first person who answers. While some additional items to consider include hours of operation, funding procedures, and 24/7 online account access, the bottom line is that it’s vital to ask questions when speaking with a potential factoring company. This is the best way to open up dialogue and learn more about their policies and procedures.
Final Words
Just like many of our other articles, this post is only intended to jump start the process of finding the best factoring company. The truth is that all clients have different needs just as all factors operate differently from one another. If you’re searching for the best working capital partner to suit your particular situation, feel free to contact us today. We’d be happy to speak with you and help determine whether our solutions will meet your financial needs.