A factoring company is a company that purchases accounts receivable, such as invoices, from another company at a discounted rate. The transaction also passes ownership of all rights and risks associated with the receivables and the responsibility for collecting the money owed from the debtor.

Choosing the right factoring company is not an easy decision to make. Many aspects need to be considered before a company decides on which factoring company to use. Before deciding on which factoring partner you want to use, you must research all of the points below.

Factor’s Comfort Zone – Every factoring company is different, and each has its own area of expertise. Some companies manage invoices with values of tens of thousands of dollars, while others prefer to deal with millions of dollars. Although it may seem that the processes are the same, in actual fact they are not. When contacting a prospective factor, be sure to enquire as to their typical clients invoicing values.

Monthly Minimums – What is vitally important is to be aware of the minimum value of factoring invoices that a factor requires. If your company is unable to meet the minimum monthly requirements, then you may have to make up the difference in fees, depending on the stipulations of your contract. Make sure that your company will be easily able to meet these financial requirements before signing anything.

Contract Duration – It is common for factoring companies to require a business to sign a year contract at least. Though a longer contract can benefit your company in terms of reduced fees, if you feel that the likelihood of wishing to terminate the contract early is high, then make sure that there are no terms and conditions in the contract that will mean your business has to pay for the termination.

Fee Structure – Different factoring companies offer different fee structures. Generally, a number of different aspects make up the fee, for which the levels range from 3% on invoice values of up to $30,000 down to around 1.5% for much higher volumes of accounts receivable.

Level Of Service – One vital point to remember is that the level of service that you receive from one factoring company will not always be the same as another. Generally speaking, you get what you pay for, and this can help you dramatically as lower fees may seem like a good idea but a better level of service for more money is, in most cases, the more sensible option.

In summary, it is important to research all areas of the company you wish to be partners with and the contract that will bind you to them.

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