If you’ve already determined factoring, or Accounts Receivable financing, is the right fit for your business or you’re in the early stages of researching and comparing factoring companies, it’s important to keep a few things in mind.
Get it Right the First Time
First, there is no shortage of options. In fact, there are hundreds of financial companies – both independent and bank affiliated – that are willing to work with you to finance your business. While choice is good, identifying the right factoring company is crucial. Before signing a contract, spend the time up front talking to industry peers, business advisers, and researching online to ensure you’re speaking with reputable companies.
Factoring contracts use familiar financial terms, but in practice, the actual implementation and impact of these terms can feel foreign to those that have not factored before. Many factoring companies utilize fees (transaction, lock-box, monthly minimums, etc.) in conjunction with interest rates to increase their revenue. Don’t be fooled by low teaser rates with seemingly small fees only to realize down the road that you’re in fact paying significantly more than your competitor down the road.
Also, be weary of long-term contracts that include large termination fees, right of first refusal, and other terms that may limit your flexibility and ability to make a change in the future.
Low Cost can come at a Cost
Like all businesses, factoring companies have labor costs. Unlike other vendors, your factoring company’s labor is different in that it directly interacts with your customers on a daily basis in the collection of receivables. The most important, and perhaps most overlooked, trait you should look for in your factor is the factoring company’s ability to manage and protect the relationship between you and your customers. When comparing factoring companies, make sure you’re not basing your choice solely on cost and select a company that invests in their people because your factors staff will in many ways be perceived as representative of your own company.
Questions? Contact The Southern Bank
Looking for recommendations? Trying to analyze a complex agreement? Not sure if you’re getting the full story from your current partner? Don’t hesitate to contact us today and we’d be happy to provide or thoughts and help guide you in your decision process.