CHOOSING THE RIGHT FACTORING COMPANY
Searching for the right factoring company takes a little extra diligence but can definitely be time well spent to avoid headaches later. A little homework can go a long way so you don’t end up settling on a factoring company that may not be the best fit. We have a few key items to look at that go beyond just the factoring fee so you can make the best decision for your company.
DO THEY HAVE EXPERIENCE?
A critical component when it comes to finding a quality factoring company is experience. You want to look for a company that has history in working with businesses like yours and has been around for a decent length of time. Although, just because a factoring company is new to the scene doesn’t make them an inadequate option, but they haven’t necessarily invested the time dealing with the many aspects of what and how your industry operates. The more they know and understand, the smoother the process of funding will be and the lower your overall risk will likely be.
HOW FLEXIBLE ARE THEY?
We all love a little flexibility in our options. It is recommended that you choose a factoring company that allows you to choose which customers you’d like to factor. Stay away from terms that require you to factor your entire book of customers. If you have a customer that pays you fast already, you may not want to pay a factor fee on that. Always look for a factoring company that can provide you with the program that will serve your interests best, not the other way around.
WHAT DOES THEIR CREDIBILITY LOOK LIKE?
If you’re going trust a company to ensure you are getting paid on time, make sure they have a positive reputation in the industry. We live in a world that is easily defined by reviews so it shouldn’t take much to find what other are saying about the factoring option you are looking into. While a few negative reviews are common; you’ll want to make sure the positive reviews outweigh the negative. Examine how the factoring company responded (if they responded) to the negative reviews.
Look for a company that is part of an association like the International Factoring Association (IFA). Typically these associations vet out the companies they work with.
WHAT CUSTOMER SERVICE RATINGS DO THEY HAVE?
It’s easy to look at the price-tag before looking at the value but the level of customer service is so critical when choosing a factoring company. You should be building a relationship with a dedicated customer service representative, so they gain a strong understanding of how you and your business operate. The factoring company will not only be interactive with you and your team, but also your customers. You’ll want them treating your customers the way you would treat them. Checking a factoring company’s referrals and reviews can help in this department.
DO THEY ALLOW YOU THE ABILITY TO GROW?
As your company grows, so will the number of invoices and your funding needs. Can the factoring company handle your needs of tomorrow? What’s their largest client size? Is there a limit to the quantity of debtors they can take on? An invoice factoring company that has been around for several years will usually have the ability to handle larger capacity. Can they grow with you?
Factoring is a great way to free up working capital to pay bill and staff faster. A little research on the front end will allow you to find an invoice factoring company that provides the transparency, flexibility and customer support that best fit your company.
If you’re in the process of looking or simply have questions, we’d be happy to help. Give us a call: 800-727-3377.
This 12 year old girl takes a fully loaded truck over a bridge that looks like it was put together in five minutes.
This mail driver’s truck takes off moments after he leaves it running and steps out to make a delivery.
Maybe a Little Overloaded?
The speed at which you receive your funds is incredibly important. Here at Steelhead Finance, we want to help mitigate any scenarios that may hinder the growth and longevity of your business.
Steelhead has recently seen an increase in alternative financing companies in the marketplace, often referred to as a Merchant Cash Advance (MCA) or a Business Cash Advance. These vendors offer access to quick cash. We want to share with you how utilizing that type of business practice could negatively impact the factoring relationship and your business overall.
What Happens to Factoring if I Take Funds From an MCA?
If you sign an MCA Loan Agreement while already engaged in a factoring agreement, this would cause a default of your factoring agreement. A default means factoring funding would immediately stop.
Merchant Cash Advance Loan Issues
If you take on an MCA loan, the MCA will generally debit the loan payment directly from your bank account on a daily or weekly basis. Should you inadvertently miss a payment or have insufficient funds in your bank account, the MCA may immediately debit ALL money from your account in an attempt to be paid back in full. This action would leave you unable to pay your drivers, fuel bills, truck payments, and more.
Another step MCA companies will often take if a payment is missed is to maliciously attempt to redirect payment on your factored invoices. In the event they do this, the factoring company may be forced to hire legal counsel to be paid what is rightfully theirs, adding another cost to the you on top of trying to work through the cash flow and legal situation caused by the default to the MCA.
These extreme tactics may be due to the lack of regulation for this type of lender.
Why Factoring is Still the Better Option
When you need to capitalize on quick funding from your invoices, the factoring benefits are clear:
- Factoring will typically involve less risk to you than an MCA loan – MCAs charge based on your “projected” sales, which could cause you to borrow more than you’re reasonably able to pay back, while factoring turns your existing invoices in to cash.
- Factoring utilizes terms that match the life of the assets being financed.
- Factoring offers useful back office services that MCA companies don’t.
- Fees or interest charged by an MCA may reach up to the amount of the original loan while factoring fees are only a small percentage of an invoice including valuable services above and beyond just cashflow.
If you have any additional questions regarding the repercussions of using a Merchant Cash Advance loan, please contact your Relationship Manager – 800.727.3377.
Hear our own Kaiti Deaver explain what it’s like talking to trucking factoring clients on a regular basis at Steelhead Factoring.
Driver seems to be tired of the regulations after police found him to be overweight. Lightens the load right there spilling grain on the side of the road. There’s now a farmer somewhere that won’t be too happy.