Factoring companies offer invoice financing services that allows business entities to raise funds and capital through their customer receivables. In such an arrangement, the company advances an amount equivalent to around eighty to ninety percent of the value of their chosen invoices with the balance less fees forwarded only upon full payment is received from owing customers. The burden of collection will also be transferred to the factor.
There are benefits to this type of financing that has made it one of the most widely used in the business world today but just like anything else using them in the wrong ways will earn you a migraine. This is what makes it important for business owners and entrepreneurs to get to know the service more. To help you with that, we’ve come up with a list of do’s and don’ts when working with factoring companies.
Do your research well. There are many factoring companies out there so it is you job to find who they are and get to know them better. No two are exactly the same so be sure to research well. Make a list, compare them to your qualifications and short list your candidates.
Do read client reviews and feedback. To know about how quality driven they are, it is best to ask people who have experienced their services firsthand. You can do this in many ways from reading forums and blogs to calling up people personally.
Do understand every clause and sentence you are agreeing to. Again, no two factoring company is the same. They will have varying clauses to their terms and conditions and different processes. Before you sign into any agreement or contract, be sure that you understand every word there is to it.
Don’t settle for lackluster quality. If you want to make the most out of your invoice receivables then do not settle for less. Always go for gold.
Don’t go for the cheapest rate in a heartbeat. Entrepreneurs want to be cost efficient but do not let quality suffer. Just because a certain factor offers very cheap and rock bottom rates do not mean that you have to settle with them. There are other factors to consider and not just price.
Don’t use factoring without knowing what it is. If there are things that confuse you about the financing method, go ahead and ask the factoring companies you are dealing with. They will most willingly love to enlighten you and keep your facts straight.