Best Factoring Companies – 3 Benefits
With the growth of the invoice factoring industry, it has become more crucial than ever for a business owner to be selective in his or her search for the best factoring company. The more informed a business owner can be regarding invoice factoring, the better chance they have of selecting the right “fit” the first time around. While factoring companies all specialize in the same business of offering immediate working capital for receivables that are paid on terms, this is where the similarities end. Business owners searching for quick cash flow solutions will benefit from keeping the following concepts in mind while searching for the best factoring companies for their needs.
Recourse Factoring vs. Non-Recourse Factoring
Simply put, recourse factoring implies that the client is ultimately on the hook for invoices that go unpaid by the customer. However, non-recourse factoring programs release the client of any re-payment liability if the customer does not pay an invoice due to bankruptcy or insolvency. To learn more about these programs, please visit our Invoice Factoring page.
The best factoring companies will generally offer both recourse and non-recourse options to suit the individual needs of their various clients. Recourse factoring rates will typically be slightly lower than non-recourse rates, but this is due to the reduced risk taken on by the invoice factoring company. Clients who have credit worthy, consistent customers will likely not require a non-recourse factoring facility and can take advantage of the lower rates associated with a recourse program. On the other hand, some clients may work with a constantly changing customer base where credit worthiness is varied. In these cases, it may be more beneficial to the client to utilize a non-recourse factoring program and reduce their own risk of potentially “buying back” any unpaid invoices. Ultimately, the Top Invoice Factoring Companies will guide their clients through the process of matching their needs with the most appropriate program for their business.
The Best Factoring Companies Offer Short-Term Agreement Options
A truly reputable factoring service will stand behind their program by allowing clients to forego a long-term commitment. While all factors will have some sort of written agreement, for the mutual benefit of the client and the factor, these agreements are not always required to contain lengthy commitment requirements. However, it should be known that in some industries such as the construction and medical fields, longer term contracts are the norm. One effective method for selecting the best working capital provider is to ask about their contractual requirements. If a lender does not require a long term contract, they may very well place a larger emphasis on customer service and continually earning their clients’ business on a day-to-day basis as opposed to once every six or 12 months. Furthermore, when a client is not locked into a long-term contract, they are always in the position to re-negotiate a lower factoring rate as their business grows. The lender knows that if they do not constantly meet the client’s needs, that business is free to go elsewhere to fulfill their working capital needs.
Ancillary Benefits Offered by the Top Invoice Factoring Companies
When searching for the best factoring company, a business owner should always ask additional questions. For example, does the factor offer optional equipment financing services, billing assistance, or short-term unsecured loans? These are some of the features that seasoned factoring services will often provide to further help with the growth of their clients’ businesses. In addition to these optional features, Leigh Lones states in an Entrepreneur.com article that factoring helps:
“You shed back office functions such as collections, invoice management, credit and background checks for current and prospective customers, eliminating certain overhead costs and freeing resources to grow the business.”
These are just some of the standard services that the top factoring companies provide. Business owners should always discuss these features with each prospective factoring provider to ensure those practices are in line with their needs.
Final Thoughts
If you need help navigating the ins and outs of the invoice factoring industry, feel free to give us a call. We have experts standing by ready to answer your questions. We will do everything we can to match your business with the best factoring companies to meet your needs. However, even in the event we’re unable to help, there is a great chance we know someone who can.