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How to Choose the Best Factoring Company

April 23, 2018

If you do an online search for factoring companies, you’ll quickly realize there are thousands of results. How do you ensure you’re choosing the best factoring company? Here are a few items to consider when selecting the best factoring company for your business.

11 Items to Consider When Choosing the Best Factoring Company

    1. Experience
    2. Credibility
    3. Back-Office Support
    4. Industry Expertise
    5. Recourse Versus Non-Recourse Factoring
    6. Account Setup Speed
    7. Funding Frequency
    8. Advance Rates
    9. Fees
    10. Length of Contract
    11. Ability to Grow
  1. 1. Experience

    First, when looking for the best factoring company, be sure to consider those that have years of experience and knowledge.

    2. Credibility

    If you’re going to trust a company to make sure you get paid on-time, make sure it is a credible and well-trusted company. One quick way to help ensure this is to look at the factoring company’s Google and Facebook reviews. Keep in mind; almost every company will have some negative reviews. It is more important to make sure that the positive reviews outweigh the negative ones. Since you’re bound to come across negative reviews, take a look at how the factor responded to it, or if they did at all.

    best factoring company3. Back-Office Support

    When you choose to partner with a factoring company, they should be just that, your partner. Many factoring companies provided additional back-office support. Some of these services may include, credit and risk analysis, treasury management, accounts receivable management, and collections.

    4. Industry Expertise

    Not only is it important for the factoring company to have experience, but it is equally important for them to have experience in your industry. A factoring company that has experience in your industry can help ensure that you get quickly paid as they know the invoicing requirements and many major players in your industry.

    5. Recourse versus Non-Recourse Factoring

    Factoring companies offer recourse and non-recourse factoring programs, with the majority of them being recourse factoring.

    With recourse factoring, the client is still ultimately liable for the invoice. Any invoice that goes unpaid or is in dispute will be sold back or “recoursed” back to the factoring client. Because the risk is minimized, the advance rates are generally higher, and factoring fees are lower when compared with non-recourse.

    Non-recourse factoring is essentially the opposite of recourse factoring. The factoring company assumes full liability for the invoice. Because of this, your advance rates will generally be lower, and your factoring fees will be higher. Factoring companies that offer non-recourse usually require your customer to have a long, extensive history of prompt payments for the invoices to be purchased.

    6. Account Setup Speed

    If you’re in need of quick cash to meet your business obligations, be sure to ask how long the setup process takes. Many factoring companies can get this done in a matter of a few days, but it’s good to ask to ensure you have the working capital when you need it.

    7. Funding Frequency

    Some factoring companies offer funding every day, while others will fund you only once a week. Whether you need cash on a daily basis or a weekly basis, be sure to check with your potential factor to ensure you’ll get paid on your invoices when you need it.

    8. Advance Rates

    Advance rates can vary between 70 and 95 percent, depending on your industry, invoicing volume, your customers’ pay trends, and whether you’re doing a recourse or non-recourse factoring program.

    9. Fees

    Factoring companies will charge a factoring fee for their services. This fee varies based on the same reasons advance rates vary. Be sure to check your factoring agreement for any additional fees or hidden costs.

    10. Length of Contract

    Contracts for factoring companies can be as short as a one-time deal or as long as a two-year agreement or even more. Check on the length of your agreement and find out if there any penalties for ending it early.

    11. Ability to Grow

    As your business grows, you want to be sure to select a factoring company that can provide more working capital to keep up with your business demands.

    The Best Factoring Company for You

    Above are just a few of the items you should carefully consider when selecting a factoring company. It is important to read your contract in detail and understand it before signing it to ensure it meets your business needs.

    To learn more about invoice factoring, please feel free to give us a call at 800-707-4845 or contact us via our website.

    About TCI Business Capital

    TCI Business Capital has provided factoring services to companies across North America since 1994. Our easy-to-setup factoring programs allow for same-day cash advances on your invoices. We’ve worked with a variety of industries including oilfield services, trucking and freight, staffing agencies, telecom, and more. We offer back-office support for our clients including credit services, collections, and treasury services at no extra charge.