Looking for a Good Invoice Factoring Company?

So, your company has decided that accounts receivable factoring may be a good option. Below is a quick look at some of the factors you may want to consider when looking for an invoice factoring company.

Initial payment: Most invoice factoring companies will make an initial payment for your accounts receivable; usually somewhere between 60% to 90%. All other things the same, most companies prefer more cash up front to less (in fact cash is probably the reason you are debating factoring invoices in the first place). If you can find a company that will give you 80% or more of the face value of your invoices then you are probably dealing with a reputable company. Note: certain characteristics about your invoices may make a factoring company want to give you less than this even though the company is acting ethically.

Second Payment: After the factoring company has collected the money from your accounts receivable, they will send you a second payment (if they don’t, then you should be really worried). This payment is for the remaining 40% to 10% of the balance. When considering which company to hire, poke around a little bit and see how long it takes them to send you that second payment from the time they receive it from the customer. If they are holding on to it for a significant period of time, then it really doesn’t do your company much good to factor invoices because you are still waiting for cash.

Fee: Invoice factoring companies need to make money as well. They are not running a charity service that simply infuses companies with cash. They charge a fee for advancing your company money. This fee is usually around 2% to 4% per invoice per month. Doing some quick math should show you that this is quite a high rate for a loan, but it may be a lower rate than some other cash advance options. If a company is charging your company much more than 4% to factor invoicing services, then you may want to start shopping around.

Collection Services: Your company has spent its sweat, blood, and tears trying to form relationships with customers so they will continue to shop with you. In fact, you may have decided to give your customers a lenient credit policy so that they would continue working with you; and this may have led you to need to do invoice factoring in the first place. Remember that these factoring companies may not be as accommodating when they are collecting money from your customers. Try to see if your company can still be the one collecting from customers if you are worried about this. Or at the minimum make sure that your customers will be treated respectfully from the factoring company’s collectors.

Hope this gives you some ideas of what to look for when shopping around for a factoring company.