Taking your time and finding an accounts receivable factor capable of working with your business and providing the funding you need when you need it is an important part of your overall business plan.
Through a top factor, you can see your invoices for immediate cash, less the factoring fee, providing you with funding to take on new business, replenish your inventory or to make payroll or hire new employees.
Finding the right accounts receivable factor is the first and most important step. There are differences in these companies and services just as there are differences between any other types of financial institutions and options.
To avoid partnering with the wrong factor or one not offering the most cost-effective accounts receivable factoring it will be up to you to do your research and ask questions to get to know the company.
Experience
The nature of the business means that the accounts receivable factor has to be experienced both in working with small businesses like yours as well as working within your industry. This will assist in your approval and in the factor being able to accurately assess the risk. Experts recommend choosing a factor with five plus years in the business.
Sales Volumes
Many factors, particularly those working with larger businesses, have a minimum volume of accounts receivables that must be factored per month or per quarter. In addition, some may charge a minimum volume to hold the fee quoted for the service, with additional fees and increased rates if the volume falls below this minimum.
Always verify if there is a minimum volume and make sure you will have no difficulty in meeting it. Even better, look for a factor without these requirements.
Commitment
There are some factors that are very user-friendly and work with small businesses on an as-needed basis. Others may require a six month or 12-month commitment to use the service to receive the fees and rates quoted.
For maximum flexibility, consider being locked into an agreement. Also, check for fees and additional costs for terminating the contract, due diligence or even application fees. There are factors that do not charge these fees, which means more money on hand for your business.
