Factoring is when factoring firms purchase your open invoices. You usually receive payment for those invoices within 24 hours. The factoring company then collects payment on those invoices from your customers. Factoring is sometimes referred to as accounts receivable financing.

Using factoring services or getting a merchant cash advance both put money in your bank account quickly, but there are several things to consider when deciding which is the best option for you.

What is Factoring?

Factoring is a financial service where a factoring company purchases your open invoices. You usually receive payment for those invoices within 24 hours. You can choose which invoices to sell to the factor and you’ll receive an advance on each of them. Some factoring companies advance up to 97% of the total amount of the invoice.

Reasons for Switching

There are a variety of reasons why a company may consider switching factors. Maybe your factor doesn’t have good customer service – they’re not picking up the phones or they’re treating your customers poorly. Perhaps your factor isn’t funding your invoices in a timely manner. Or, maybe you found another factor with better advance rates and lower fees. Regardless, if your needs are somehow not being met, you may be ready to switch factors. But where do you start?

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Factoring your receivables is a proven way to build up cash flow, but outdated technology sometimes interferes with getting paid faster.

Many factoring companies today still insist that their clients provide original invoice documents. Others require the time-consuming process of scanning and emailing each invoice. At a time when the digital economy is transforming financial services, many factors are still stubbornly low-tech.