5 Things to Watch Out For When Choosing a Factoring Company

Hidden Fees

Make sure you understand a factoring company's fee structure. Beware of "hidden" fees that cover money transfers, software, collateral and other business costs. Ask if the factor charges only a flat fee, which is a percentage of your total invoice value. Be prepared to negotiate the removal of these fees if they exist or choose a factoring company that doesn’t charge them.

Bad Customer Service

Exemplary customer service should be an important part of your factoring experience and lousy customer service is a leading reason why companies leave their factoring provider. When talking with a factoring company, ask if there are dedicated reps to manage and answer questions specifically about your account. You want to know that you’ll be able to reach someone who can help you if you need it. A company’s reviews (like those on Google) may be a helpful resource in determining what kind of customer service they offer.

Limited Funding 

Before entering into a factoring agreement, make sure the factor has enough financial resources to continue funding your invoices even as your company and receivables grow. Factoring companies that have been in business and have served your industry for several years usually have greater financial capacity. Watch out for newer companies that might not have the access to the resources needed to fund your invoices as you grow and take on more customers of your own.

No Online Account Access 

Some factoring companies make it difficult for you to see your account information. Make sure you can access your account balance, aging and reserve reports online. This is critical information you need to run your business effectively. Look for a company that offers a mobile solution, so you can submit invoices from anywhere at any time. A factoring company that requires you to email or mail in invoice documents might mean they are lacking the technology that makes the entire factoring process much easier on you.

Bad Application Process

Things like a lengthy application process, taking forever to approve a new customer or filing the UCC (Uniform Commercial Code) too early can have a negative impact on your business. For example, if a factoring company files the UCC too early and you decide to do business with another factor, the existing UCC must first be terminated. If you are shopping around for factoring companies, you want to make sure you know what to expect so you aren’t blindsided in the final stages of the deal.