Although accounts receivable factoring is a terrific approach to relieve cash flow strains, engaging with the wrong factoring firm might put your company’s operations under a different kind of cash flow strain. There are literally thousands of factoring in Modesto to select from, so knowing what to look for and what questions to ask can help you find the greatest fit for your company. This article offers four factors to think about when selecting an account receivable factoring company.
- Knowledge of the industry
Factoring companies come in many shapes and sizes. When it comes to picking an accounts receivable factor, the first step is to choose one who understands your business model and the market in which you operate. The ongoing factoring process will operate smoothly if you partner with an accounts receivable factor who understands the unique qualities of your firm. Don’t waste time explaining standard payment terms and/or day-to-day business operations to someone who doesn’t understand your company’s business model. Choose a funder who is familiar with your industry.
The level of flexibility that a factoring firm offers its clients is the second point to consider when shopping factoring firms. A wise business owner will make sure to ask potential factoring candidates some or all of the following questions: Is there a minimum amount of time that I must stay in the factoring relationship? Is it necessary for me to sign a personal guarantee, agreeing to be personally liable for any unpaid invoices? Is it necessary for me to sell all of my invoices? Do I have to factor in all of my customers’ invoices? In the case of a newly established business: Is there a set number of invoices that I must factor in? And, if that’s the case, what are the consequences if I don’t satisfy the minimum requirements? Is there a maximum amount that can be funded in the case of a quickly growing business?
- Provide excellent customer service
Time is money in the corporate world. It’s a waste of time to have to negotiate a complicated phone system and be put on wait for long periods of time. This may simply be avoided from the start when looking for a factoring company to work with. An excellent factoring company is one that is there for its clients when they need them. During the sales process, keep an eye on response times for both email and phone communications. Keep track of who responds to your questions. Make it a goal to find an invoice factoring firm that provides the quality of customer service you desire, regardless of how many people are working to support your business.
It’s a good idea to have a rough concept of how factoring companies arrange their fees before plunging in blindly and discussing numbers. When a factoring company lends money on receivables, it is actually buying the invoices at a reduced price. This discount could be a one-time cost. It can also differ depending on how long the factor owns the invoice, with the factor charging a percentage based on the length of time it takes for the invoice to be paid.