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Factoring Information

Invoice Factoring - Choosing a Factor

Choosing An Invoice Factoring Company

Invoice Finance

When you're looking to improve you cash flow or to fund business growth then factoring your sales ledger can provide valuable help.  Invoice finance or invoice factoring is, basically, a business loan using your asset as the collateral.

When you want to consider invoice factoring it's sensible to talk to a number of invoice finance companies initially and then to get quotes from them, so that you can make an knowledgeable decision about the best solution for your business.

Starting The Search For A Factor

You might start your search with the Asset Based Finance Association who provide full contact details of factoring companies; their services and likely revenue criteria.  Many commercial banks offer invoice finance advice and solutions but they're not the only organisations and there are many independent companies.

If going directly to a factoring company seems too complex then you might want to consider using an invoice finance broker.  The broker will negotiate with the factoring companies on your behalf and then provide you with the best options.  Generally these brokers will work for you free of charge as they will be receiving a commission from the factoring company.

Of course you'll need to make sure that the invoice finance companies your talking too are offering the services you require at the best price.  Talking to several companies should help you understand what's available and some of the differences in offers.

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You should confirm with each of the factoring companies what their credit procedures operate.  For example, will the factoring company want to approve all new customers in future and how quickly will they make their decisions?

When considering the fees you will need to check with each provider what their finance and credit management fees are going to be as well as costs for credit protection.

Again, talking to a number of factors should help as these fees will be negotiable to some degree, and you should expect the fees to reduce as your revenues increase.  Be aware that some factoring companies may want you to pay for them to review your existing debtors.

Invoice Finance Agreements - What To Do Before Signing

When you finally decided which factor you want to work with you should run through everything proposed one more time before signature.  While some contracts offer easy get-outs and trial periods the process of getting out of any agreement can be more complicated in reality.

Don't forget the personal relationships either - only work with the invoice factoring company if you can work closely with their people.

How do you judge the factoring company performance?

Questions to consider:

How can you be sure that the factoring companies will perform as you expect.

Find out who will be working with your account and what experience these people have of your type of business.

What's the communication process.

When you are working together how will you communicate with each other.  Will there be regular meetings?  How often will they send reports to you and what information will you be required to send to the factoring company.

What's the invoice finance companies success on collecting invoices?

What's their collection process and how do their systems and performance compare with your own?

What is the Invoice Finance Companies customer service like?

How accommodating or helpful will they be to your customers? How quickly will they act in the case of an emergency - what's the process?  If one of your customers goes above their agreed credit limit, perhaps by mistake, how will they respond, and if you would like to increase a customer's limit what would they do?

What happens if you fell that the performance of the invoice finance company has been disappointing?

Remember if they don't perform then it's you who will pay.  You'll pay finance charges on the outstanding monies that haven't been collected.

What references, testimonials of case studies can you see?

Ask to speak to an existing customer or customers of the factoring company and make sure you speak to them.  Find out how satisfied the customers are and how the relationship has progressed and what problems if any they've encountered.  Hindsight is a difficult thing to have so someone else hindsight could be invaluable.

Invoice Factoring - The Credit Collection Process

Questions to consider include;

How will the factoring company make the collections on your behalf?

What's the process? When will they send out the customer statements and what's the process where an invoice is in dispute?

How do they approach customers who have an overdue invoice?

What reminder letters and calls do they make to ensure prompt payments.  What do they do when a customer account is considerably overdue?

What extra actions do they undertake?

Do they use collection agencies and will they take legal action

Invoice Factoring Agreement

Read the factoring agreement before you sign.  Make sure you have a reasonable understanding of the terms especially any performance terms and of course cancellation and/or termination clauses. If you aren't clear on the terms of the agreement then it would be sensible to have your solicitor review the document.

The final things to consider here are:

What would you have to do if you wanted to change factoring companies.

Can you do it? What would be the process? There should be a notice period and there might be a fee involved.

What happens if you want to alter or amend the service given to you by the factoring company?

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