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Dos and Don’ts to Keep in Mind When Choosing the Right Factoring Company


June 28, 2019

As a small business owner, you know that staying on top of cash flow can be a challenge. Without adequate cash flow, you may be unable to meet your financial obligations and, as a result, your growth can stall. As we’ve discussed in previous blog posts, partnering with an invoice factoring company can help small businesses even out their cash flow. In fact, factoring companies can help small businesses bridge invoice payment gaps, from completing a project or service through payment. However, as is the case with any financial service, not all providers have the same quality and results, and it takes time and research to determine which company will help best meet your small business’s financial goals. Here are just a few dos and don’ts to remember when looking for an invoice factoring company.

DO: Consider online features and overall ease of access.

Accessibility is a major feature for many of today’s factoring clients. It makes sense. It is essential for your business to be able to access vital information about your account as needed. You also need the ability to get in touch with customer service in case an issue arises. In many cases, the way your factoring company communicates with you speaks volumes about how your own clients perceive your business, so take time to ask the right questions about online features and overall accessibility. Ideally, you should be able to:

  • Access your account online at any time of day
  • Get reports and other information easily and quickly

If you’re concerned about accessibility, ask about a factoring company’s client portal and any additional technology that can make submitting invoices and getting paid as easy as possible.

DON’T: Neglect to determine whether recourse or non-recourse factoring is ideal for your needs.

Recourse and non-recourse factoring are different processes. Non-recourse is typically the safer option for businesses because it offers some protection if your client declares bankruptcy. Smaller operations tend to be the best fit for non-recourse as many lack the size and cash flow to handle non-payment from a client. You should ask about the comparative rates for recourse and non-recourse factoring, as well as the details of how recourse factoring works.

DO: Look at value-added services and affiliations

There are several hundreds of factoring companies, and all offer the same basic promise: to give you your money as fast as possible. But many factoring companies also provide a variety of additional services that can help your day-to-day business operations. For example, invoice factoring companies will typically offer collections services on your outstanding invoices. This means that in addition to getting an influx of cash, you also don’t have to spend time chasing down your clients hoping they pay. Another service factoring companies provide are credit checks on potential clients. Do you ever worry whether or not a prospective client has the funds to pay you? When you work with a factoring company, they will perform a basic credit check to ensure the client is likely to pay you.  Now you can accept that job or contract with confidence. Be sure to ask about any other partnerships or offers a factoring company might have with other businesses. Many times, you can get discounts or free trials to helpful business tools or resources just by signing up. With so many companies, it can be tricky to do a true apples-to-apples comparison. Don’t be afraid to ask questions if you’re unsure how a company’s contract works.

DON’T: Rush the process or make a hasty decision.

Finally, don’t rush the process of choosing a factoring company as your partner. Take a couple of days to see which company has the best potential to help your business. You’re signing a contract, so you’ll be on the hook for what it says. Take time to review any language, and make sure you know the expectations.