Invoice Factoring - Choosing a Factor
Choosing An Invoice Factoring Company
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
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
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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
Invoice Finance Agreements - What To Do
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
How do you judge the factoring company
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
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
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
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
How do they approach customers who have an
What reminder letters and calls do they make to ensure prompt
payments. What do they do when a customer account is
What extra actions do they undertake?
Do they use collection agencies and will they take legal
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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