A Guide to Selecting the Best Factoring Company
Selecting the right factoring company for your business is a challenge. It is important to consider several items when evaluating different factoring companies.
Before going into the details on what to consider, it’s essential to understand what a factoring company does and why businesses use factoring companies.
What is Invoice Factoring?
Invoice factoring is a financing service provided by factoring companies. Invoice factoring works by selling your open invoices to a factoring company in exchange for immediate cash.
How does invoice factoring work?
- Complete the work and billing as usual.
- Send the invoices to the factoring company instead of your customer.
- Receive a cash advance from the factoring company, typically 80 – 90 percent of the invoice value.
- The factoring company sends the invoice to your customer.
- Your customer pays the invoice to the factoring company.
- The remaining balance of the invoice, less a factoring fee, is paid to you.
Why Use A Factoring Company?
Businesses choose to work with factoring companies for a variety of reasons, but the most common denominator is the need for consistent cash flow. Factoring companies eliminate the wait and wondering of when you’ll get paid by paying you immediate cash on your invoices.
Companies use factoring when they are unable to get traditional bank financing. Approval for invoice factoring is based on your customers’ credit strength rather than your company’s, making it ideal for start-ups and companies with financial challenges.
Get Approved for Factoring Today
Factoring Companies vs. Traditional Lenders
Invoice Factoring With TCI Business Capital |
Traditional Lenders |
| √ Same-Day Funding | − Funding in 1-2 Months |
| √ Qualify Based on Your Customer’s Credit | − Qualify Based on the Credit of Your Business |
| √ Simple Setup & Application Process | − 1-2 Month Application Process |
| √ Invoices Serve as Collateral | − Inventory, Equipment, & Assets Serve as Collateral |
| √ Free Credit Reports on Customers & Potential Customers | − No Credit Services |
Evaluating a Factoring Company
Service, Experience, & Credibility
It is important to make sure that your factoring company has experience and is credible. Find out how long they have been in business. Do an online search to find reviews. Remember, most every company will have some negative reviews. It is more important to make sure that there are more positive than negative ones. If there are negative reviews, take a look to see how the factoring company responded to the situation, or if they did at all.
Additional Services
Many factoring companies offer additional services that can help your business focus on other objectives. See if your potential factor provides other services that could help save your business time or money. Such services might include credit analysis, risk management, and accounts receivable management.
Industry Expertise
As mentioned above, experience is critical to ensure you’ll get prompt payment. A factoring company that has experience in your specific industry is even better. With experience in your industry, the factoring company understands the nature of your work, knows many of the invoicing requirements, and has probably worked with many of your customers and potential customers.
Recourse versus Non-Recourse
There are two types of factoring: recourse and non-recourse. While both provide your company with immediate working capital, there are a few differences.
Recourse Factoring: This is the most common type of program, offered by the majority of factoring companies. With recourse factoring, the factoring company has the right to sell an invoice back to you if your customer does not make payment within the amount of time stated in the contract.
Non-Recourse Factoring: The factoring company takes on the financial risks of collection of invoices, even when payment extends beyond the standard terms. It’s important to read the fine print with non-recourse factoring as many of your invoices can still be excluded.
For most companies, recourse factoring is the right option as the factoring fees tend to be much lower than with non-recourse factoring. Plus, the credit standards applied to your customers are not as stringent.
Advance Rates
The advance rate is the percentage of the invoice total that you receive when the invoice is advanced on by the factoring company. This rate varies for a variety of reasons including your industry, invoicing volume, and your customer’s pay trends. The standard advance rates for most industries is 80 – 90 percent.
Fees
A factoring company charges a fee for their service. This factoring fee is based on how long it takes each invoice to be paid by your customer. Some factoring companies will charge additional fees for other services. Be sure to read your contract in detail to make sure you know how much factoring will cost.
Contract
Contracts can be as short as a one-time deal, also known as spot factoring, or as long as a two-year agreement, or even more. Before signing an agreement, make sure to consider the length of your contract and to see if there are any penalties for ending it early.
Monthly Volume Commitment
Typically when you choose a factoring company, you are contracted to send a specific monthly volume of invoices. As your business changes, your invoicing volume can go up or down. It is a good idea to talk with your potential factoring company to understand what happens if your monthly volume changes.
Invoice Factoring with TCI Business Capital: North America’s #1 Factoring Company
Service, Experience, & Credibility
TCI Business Capital has been funding businesses since 1994. We serve companies in a variety of industries, from start-ups to well-established firms. Our online reviews display our credibility, superior customer-service, and get-it-done culture.
Additional Services
As part of our invoice factoring programs, we offer value-added services to our clients at no additional charge. Some of these services include:
- Accounts Receivable Management: You’ll have a dedicated relationship manager to ensure your invoices and accounts receivables are managed properly. Our staff is highly-skilled and service oriented to help avoid any issues with your invoices.
- Credit Services & Risk Management: Our credit team monitors the pay trends of your customers to help ensure payment will be made. They will make you aware of any changes in pay trends before it affects your business. If you’re considering taking on a new opportunity with a customer you haven’t worked with, our credit team looks at their credit history and payment trends, giving you confidence in taking on a new contract.
- Collection Services: To save you time, we have dedicated AR Specialists to help ensure payment is made in a timely manner, and who work to resolve any situation that might delay payment.
- Treasury Services: Our Treasury Department ensures you’ll get the funding when you need it. We offer our clients ACH deposits, wire transactions, and we can deposit funds directly into third-party accounts by directive. Real-time, online reporting allows you to see the status of all transactions at any time.
- Fuel Cards & Discounts: We offer our clients a fuel card by Fleet Tech. Our fuel card is accepted at over 5,000 truck stops in both the United States and Canada with an average saving of 15 cents per gallon. Not only does it allow you to save on fuel, there are also benefit programs to help save on tires, parts, oil changes, document scanning, and freight finders.
Industry Expertise
We have more than 20 years of experience in a wide-range of industries including:
- Oilfield Service Companies
- Trucking & Freight
- Staffing Agencies
- Utility & Pipeline
- Renewable Energy
- Telecom & Wireless
- Government Contractors
- Heavy Construction
- Technology
Recourse versus Non-Recourse
While most of our customers prefer our recourse factoring programs, we do offer both programs depending on your needs. Talk with one of our financial representatives to see which option works best for your company.
Advance Rates
We offer competitive advance rates on your invoices. Once we receive an invoice, you’ll receive same-day funding.
Fees
Our low factoring rates are outlined in your contract.
Contract
We offer month-to-month contracts. We want to keep clients here because they want to be, not because they have to be.
Monthly Volume Commitment
Because we offer month-to-month agreements, we can change your volume based on your business needs. We automatically lower your factoring fees as your volume increases. Since the contracts can be month-to-month, it allows you to avoid any volume deficiency fees that could occur with other factoring companies. Our monthly programs start at a minimum of $50,000 in invoicing volume.
Compare Factoring Companies
| BlueVine | TCI Business Capital | Paragon Financial | |
Year Established |
2013 | 1994 | 1994 |
Additional Services |
None | Credit Analysis Risk Assessment AR Specialists (Collections) Dedicated Account Manager Fuel Cards Treasury Services Online Reporting |
Credit Analysis |
Industry Expertise |
No Industry Specialties | Oilfield Trucking Staffing Telecom Renewable Energy Government Contractors Utility & Pipeline Heavy Construction Technology |
Manufacturing Wholesales Distribution Government Contractors |
Recourse vs. Non-Recourse |
Recourse | Both | Non-Recourse |
Advance Rates |
85-90% | 90-95% | 90-95% |
Contract |
Spot Factoring | Month-to-Month | Contract & Spot Factoring |
Monthly Volume Commitments |
$20,000-$5,000,000 | $50,000-$20,000,000 | $30,000-$3,000,000 |