Last Updated on December 15, 2020
How do I choose from the best invoice factoring companies near me – For your business to make the right choice, it is crucial for you to understand the invoice factoring concept and how it works.
Invoice factoring also referred to as accounts receivable factoring or AR factoring is a financial transaction involving business to sell its accounts receivable to a factoring company to secure a working capital to cover its expenses.
When your business delivers the goods or services to your customers, you issue invoices. These invoices are usually due in 30, 60, or 90 days, meaning that you will have to wait for a delayed payment while having immediate needs. Therefore, you can choose to factor some of all your invoices to a factoring company that will buy them and bridge that gap for you.
There are usually three parties involved in a receivable financing transaction: the company that issued the invoice, the account debtor (customer owing to the payment), and the factoring company. This way, invoice factoring allows your business to have a steady cash flow and enough working capital to manage your operations and support your growth.
Table of Contents
How Do I Choose From the Best Invoice Factoring Companies Near Me
Finding the best factoring company is not an easy task. There are hundreds of factoring companies on the market that vary in size and experience. While some would serve various industries, others would once focus on a segment.
How do I choose from the best invoice factoring companies near me? Here are some tips to help make this process faster and easier:
1. Industry Expertise
When looking for the best invoice factoring companies near me I’d make sure that I the pick one that has direct experience in my industry. Some industries are more delicate than others and may require adjustable programs and services. Along with the industry experience, you should choose a factoring company that is well-established and has a proven track success record.
2. Evaluate Customer Reviews
Reviews are an important tip to help you choose the best invoice factoring company. Before entering into a deal with a factoring company, it is important to know how most clients who have worked with them react. It is important to pay attention to customer reviews as this will help you evaluate the best invoice factoring company that you should select and hire to provide invoice factoring services.
3. Customer Service
Support through telephone, emails, and potential meetings is a must. As I researched on best invoice factoring companies near me, I focus on factoring companies that understand the need for customer relationship. Finding a company that is well mannered and treats your customers like you would treat them is essential. One way to determine customer service is to ask for company referrals or check customer reviews.
4. Terms and Fee Structure
Not all factoring companies have the same terms or fee structure. Factoring companies that claim to be the fastest, cheapest, and easiest to use may not be the right fit for your business. These companies often unfairly charge you additional or hidden fees, such as application fees, background check fees, field examination fees, attorney fees, UCC filing fees, monthly processing fees, invoice submission fees, ACH fees, and wire transfer fees.
Factoring fees can range from 1-5% per month on the face value of the invoice. Some companies advertise very low fees of 1%; however, they make up with hidden fees. Factoring advance rates can range as well from 70-90%, but typically tend to be 80% for non-specialized industries. An advance rate is the percent of the invoice face value that you will receive right away. Just remember what might seem to be the cheapest or best option can turn out to be the more expensive or more restrictive option with additional fees or lower advance rates.
5. Flexibility
When choosing a factoring company, make sure you choose a company that offers flexibility. Some companies require long-term contracts, pre-payment penalties and/or monthly minimums. Additionally, choose a factoring company that allows you to choose which invoices you want to factor. Avoid terms in which you have to factor all invoices or factor all invoices from a particular customer. Lastly, some factors will take over your accounts receivable function, which means they will be responsible for sending all invoices and collecting on them. While this outsourcing might seem appealing, many small business prefer to retain ownership over their customer relationships and send their own invoices.
6. Integrity
You want to work with a factor that keeps its promises, treats your customers fairly, and doesn’t surprise you with hidden factoring fees. Use your resources; you can request your factor to provide you with bank references, client references, and a summary of their financial status. Your factoring company should have a strong credit history and a list of long-term clients. Remember, your factor will be your working partner, so demonstrated professionalism is essential.
It is necessary to carefully choose a factoring company. You need a factor that can offer you more than just financing. When choosing a factoring company, consider how important each of these critical factors is to your business. You need to choose a business partner who will provide your business with the best combination of criteria, flexibility and terms that suit your needs.