4 things to consider when choosing an invoice factoring provider

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If invoice factoring is right for your business, you’re still faced with the problem of choosing a factoring company. But there are various different factoring companies, ranging from major financial institutions to smaller independent companies. Because of this, there are a number of things to consider when choosing an invoice finance company to work with…

Is your business just a number?

As factoring is provided by banks and large financial institutions, it’s often the case that you’ll deal with multiple contacts or “client managers”. These, in turn, will have huge numbers of clients. But this needn’t be the case. If you deal with smaller finance companies you’ll often be in contact with the same person throughout the process; the person you first contact will be the underwriter and manager of your account. This has the added benefit of allowing for quick decision-making and approval, as well as the flexibility to offer your business bespoke packages. Remember that you’ll be dealing with your provider on a regular basis, so need to make sure that they’re trustworthy, reliable and that they understand your business.

Will your contract be based upon minimum monthly invoice volume?

Another consideration to bear in mind is that some invoice finance companies will base contracts on minimum monthly volume; they’ll only work with clients that do a minimum monthly volume of invoicing. However, there is a major problem with this, particularly for small businesses. Monthly invoicing might be very variable. Instead, it’s worth thinking about approaching a factoring company that is based around quarterly volume. This is much fairer as it takes these variations into account.

Will they tie my business into a long-term contract?

Some finance companies will tie you into a long-term relationship. Some include notice periods of up to a year. But different companies in different sectors obviously have different financial needs, not to mention the fact that your customers might pay on different terms and having changing needs in terms of financing. Your business may just need relatively short-term factoring over a short (1 month, 3 month, 6 month) period. In this case, it’s worth considering the length of contract being offered by the factoring company you’re in contact with.

Will I need to fill out lots of paperwork?

There’s no easy way around this. There will always be paperwork to complete, such as audits of the financial records of your business and the provision of lists of your customers. Remember, though, that’s it’s the sales ledger that the factoring company will be interested in rather than your credit history. And – importantly – we’re talking about legal documents here so it is important that the factoring agreement is prepared correctly and read carefully. While this entails a fair amount of paperwork, ask your factoring provider whether they prepare this and send it to you in advance.