Factoring Services: 6 Sensible Tips for Your Business
Factoring is an alternative method of financing that allows business owners to receive the money they need to grow their business, without having to wait for their customers to pay them. Business owners who choose this type of financing will sell their outstanding invoices, or accounts receivable, to a company providing factoring services.
If you are interested in factoring receivables,you will need to choose the right factoring service for your business. Here are a few tips you should keep in mind.
💰 1. Search for factoring companies in your industry
No factoring company can be the right one for everyone. If you want to find the right one for your business and for your needs, you should start by searching for a factoring service provider that has a lot of experience in your industry.
A company that is used to working with businesses similar to yours should be able to provide you with different options and services that will make sense for you. However, the process of factoring receivables is generally the same in most industries.
💰 2. Factoring companies offer different services
As you search for different factoring companies, you will see that there are differences in the services they offer. Some companies will ask you to sign a long-term contract, while others will let you use their services only when you need to.
Some companies will only pay you 70% of your outstanding invoices, while others will pay you 100% of the value of your invoices, but will charge you some fees. You will need to choose the options that work best for you.
💰 3. You have the choice between recourse and non-recourse factoring
Factoring services can be divided into two main categories: recourse factoring and non-recourse factoring. Recourse factoring is the most common type of services. If you choose this option, factoring rates will be very competitive, but you will assume all the risks if one of your customers fails to pay their invoice.
With non-recourse factoring, it would be the opposite. The factoring fees will be higher, but the factoring company will be the one assuming the risks if some invoices are not getting paid.
💰 4. Decide how many of your invoices you would like to factor
If flexibility is important to you, you need to choose a factoring company that will allow you some flexibility. If you are not planning on using factoring services all year long, you should not agree to sign any year-long contract.
Instead, you should look for a company that will let you choose which invoices you want to factor, and when you want to do it. You should be the one in control of how many invoices you factor.
💰 5. Make sure the factoring company you choose excels at customer service
It makes sense to want to do business with a courteous company that will always be ready to answer your questions and to provide you with assistance, but you should keep in mind that your customers want the same thing.
Since the factoring company you choose will be dealing with your customers as they pay their invoices, make sure they know how to provide excellent customer service. You want to partner with a factoring company that will reflect the good reputation of your business.
💰 6. Compare quotes from different factoring companies
When you have found different companies that seem like they can meet your criteria, ask them for a quote for factoring receivables. When you receive your quote, compare the fees, services, options and requirements that come with each company, and make your choice.