Choosing the Best Factoring Company
Ten years ago, selecting the best factoring company was a fairly straightforward task – there simply weren’t many options. Fast forward to today and now there are hundreds of organizations from which to choose, making the selection process much more complex. If this choice seems daunting and you’re unfamiliar with invoice factoring or question whether it’s right for your business, feel free to first browse our Invoice Factoring page or Contact Us directly to discuss your situation. On the other hand, if you’re ready to find that “perfect match”, carefully consider the items below when making this important decision:
Rates and Fees
First and foremost, what advance rate will you receive up-front on your gross invoice value? This rate not only has a significant impact on your ability to manage cash flows, but it can also affect the fees you incur. The truth is that these items are positively correlated which often means a higher advance rate results in higher fees and vice versa. That begs the question, what are the factoring fees? Since some fee structures start low and increase slightly over time, it’s imperative to consider the average days it takes your customers to pay their invoices. Depending on that number, a flat or tiered fee structure may prove itself most beneficial. And don’t forget to ask about any additional charges such as processing fees, application or set-up fees, funding fees (wire, ACH, etc.), or anything else you could possibly encounter.
Contract Terms
Short term contracts have become much more common in accounts receivable financing over the past several years. While these do hold obvious benefits, there are a few reasons to consider longer contract terms. For example, a factor may be able to provide you with even better rates/terms if you sign up for a longer period of time. While every factoring company is different, this should be a consideration if you’re especially comfortable with a particular organization or can realize significant savings. Additionally, don’t forget to find out if they hold you to monthly minimums and require you to factor all of your customers or just the ones you prefer.
Experience and Specialization
Given the substantial increase in the number of funding sources over the recent years, it’s very important to ensure you are working with an organization that has a proven track record in the industry. In addition to this, working with a funding partner that specializes in your particular industry can greatly aid in preventing complications over the course of your working relationship. That being said, many factors specialize in a handful of areas and there is certainly nothing wrong with this as long as your particular business type is one of them. Working with an experienced organization that has a full understanding of the intricacies surrounding your industry is always advisable.
Comparing Proposals
Once you’ve applied with and/or solicited initial proposals from your select group of possible partners, you’ll want to consider these important items for comparison:
- Advance rates
- Factoring fees and fee structures
- Recourse vs. non-recourse (see here for more info)
- Contract terms
- Additional fees
- Timeliness of fundings
- Ancillary services
- Any other items specific to your needs/expectations
Factoring Brokers
Attempting to find the best factoring company while simultaneously managing your business can be quite overwhelming. The good news is that there’s a solution – by working with a reputable factoring broker, you can leverage their relationships to help locate the right funding partner for your needs. A quality broker will always begin with a detailed discussion focused on your business and its financing needs. Following this conversation, the broker will help you determine your most appropriate funding source – saving you a tremendous amount of time, energy, and frustration. Best of all, a broker’s funding sources are well aware that providing you with 1st class service is of paramount importance and that their ongoing referral relationship depends upon that simple fact. Oftentimes, this results in obtaining the most competitive rates, terms, and service. Bear in mind that a good broker will always provide their services to you absolutely free of charge and without obligation.
We believe that Orion Business Capital can provide your business with the perfect factoring solution you’ve been searching for. Our team of specialists sets us apart from the competition and we’re confident that we can help end your search today. Feel free to call us at (888) 515-7501 or send us an email at sales@orionbusinesscapital.com to get started.