A factoring company is basically a financial institution that specializes in financing invoices to help companies improve their cash flow. I know what you are thinking – that factoring companies give loans. That’s not true. Instead, these companies purchase a business’s pending invoices so that the owner can get the cash he/she needs urgently. San Jose factoring companies help businesses eliminate the usual 30-60 day waiting period for outstanding invoices.
Choosing the right factoring company
Factoring receivables is a smart way for businesses to get money right away. However, it can also turn into the business’s worst nightmare if the company chooses the wrong factoring company. Here are some of the questions that you can ask to simplify the decision-making process:
- How long has the factoring company been in business?
This is the most important thing that you need to find out about the factor. A majority of the best factoring companies have been around for longer than a decade. Of course, this is an exception for a few.
The “age” of the company means that they have enough experience to manage accounts during different economic times. Come to think of it, it is a little difficult to be the best at something while you are still new at it. The more the company understands an industry, the smarter and more complex funding deal can be made.
- What are the terms and rates/fees of factoring?
Depending on the factoring company, there can be a one-time fee or it can be a sum of several fees to cover the risks and overhead.
Does the fee they charge cover the collections work including the processing of invoices and collection from your customers? Is the fee affected by the total amount you sign to the factor? All these are very important details that you need to research.
- What industries does the factoring company work with?
Most factoring companies claim that they work with businesses in almost all industries. The best ones are those that specialize in a few industries. Your best bet is to find a company that knows your industry well.
Ask a couple of questions to determine whether the company is knowledgeable or not.
- How good is their customer service?
If you ask the sales reps or other employees from the factoring company, they’ll tell you that they offer the best services. This is what you’d expect from any other company. So this means very little at face value. The only way to determine this is to ask them for client references.
Choosing a factoring company is one of the most important financial decisions that you will make for your business. It should not be taken lightly because your business will most likely be in partnership with the factoring company for a long time. The success of your business is highly dependent on this relationship.
Choosing the wrong factoring company can cost a business essential client relationships and generate instability. Mostly, when a company is urgently looking for capital, it’s highly vulnerable and can easily make the wrong choice. This is why it’s very important to do proper research and choose the right factoring company.