What to Look for in a Factoring Company?
5-10-2005
There are six major
attributes you should look for in choosing the right
factoring company
for your business. A successful
factoring company should have a quality
credit department, a professional collection staff, a long track record,
industry specialization, financial strength, and up to date technology
in keeping their customers informed with real time data.
Unlike a bank or a
finance company, a
factoring company has a day-in, day-out relationship
with its client, so choosing the right factoring company boils down to
who can you get along with. Sometimes, the answer to this question is
the factoring company with the lowest discount fee and sometimes it will
be the factoring that meets some other need better than the one with the
lowest fee. Ultimately, determining the overall cost can prove
difficult, so you might want to consider other important variables. In
the final analysis, factoring is not a commodity item like a mortgage
loan. There are many variables besides just the stated discount fee
that will come into play when selecting the factoring company best
suited to your company’s needs. These distinctions are seldom pointed
out in the factoring proposal, so here’s your opportunity to pick the
perfect factoring company for you.
Does the factoring company have a
credit department?
A factoring company
that has a great credit department, for example, might be your pick if
you are looking for a factoring company that will help you make prudent
credit limits for your customers. A factoring company that does not have
a fully staffed credit department, likely will not approve appropriate
limits and as a result, may expose your company to inappropriate levels
of risk. On the other hand, a factoring company that doesn’t approve
enough credit to accommodate your needs may unnecessarily restrain your
company’s ability to grow.
Does the factoring company have a
collection department?
On the other hand, a
factoring company with a fully staffed collection department might be
your pick. Most factoring companies assign the task of collections to
the account representative. It might surprise you to learn the many
factoring companies don’t even have a collection department. If you are
serious about finding a factoring company that takes its job of
collecting receivables seriously, the factoring company will assign two
points of contact to you—an account representative AND a collection
specialist (accounts receivable management). One person cannot perform
both functions as well as two.
Does the factoring company have a
long track record?
A factoring company
that has been in business more than ten years likely has the experience
you need to provide an adequate level of service. A factoring company
that has weathered multiple business cycles demonstrates staying power,
but not necessarily solid capitalization. If in doubt, ask your
factoring company or a factoring company you are talking to for bank
references or a thumbnail sketch of their financial condition. Most
importantly, ask your factoring company for client references—preferably
clients in your industry.
Is the factoring company a specialist in your
industry?
You may be looking for
a factoring company that knows your industry. Industry specialization
is extremely important. If you own a trucking company, you should seek
out a truck factoring company –in other words, a factoring company
specialist for trucking and transportation. For example a trucking
factoring company will be familiar with your freight brokers and
shippers, because likely, a truck factoring company will already have
its own first-hand experience with tens of thousands of freight
brokers. If a truck factoring company already knows your customers, you
will save money, because you won’t have to spend money on credit
reports.
If you own a staffing
firm, you should be considering a
staffing factoring company or a
factoring company commonly referred to as a full service factoring
company that not only can provide you with traditional accounts
receivable factoring, but also many back office functions such as
payroll checks, payroll deposits, payroll reporting, payroll software,
invoicing and invoice mailing. Often, full service factoring (companies)
for staffing firms provide all these services under one roof and for one
fee. Sometimes the factoring company will outsource some back office
functions to an affiliate or strategic partner with greater expertise.
These third-party arrangements are common and perfectly acceptable,
provided the client is informed about all work that is outsourced to
third parties and the client approves.
Is the factoring company the right size
for your company?
You might be interested
in a small or a large factoring company, depending on your philosophy.
Your best bet may be a factoring company that is somewhere in
between—small enough to provide personalized service and access to top
management, but large enough to provide financial stability, the ability
to accommodate your needs, and the ability to weather tough economic
times.
A factoring company
that sends an executive officer, or top manager out to visit you may be
of interest to you. Very few factoring companies do so. If it is
important for you to know who you are dealing with, ask the factoring
company you are talking to if they will send an officer or top manager
out to visit you. A very large factoring company likely will not be
able to comply with such a request (unless they are located right down
the street). If you are lucky, you might get a visit from a salesman.
It is unlikely that the factoring company that sends a salesman to visit
you will give that salesman any operational authority, so it’s best if
you can get an executive, officer, or top management person.
A factoring company
that is too small may not have the financial resources to satisfy your
needs or may be too conservative in making decisions that effect your
business. A factoring company that is too small may be too restrictive
on which of your customers they will approve and for how much. A small
factoring company also may not have the capital to purchase all your
receivables.
Does the factoring company embrace
technology?
More and more, clients
are demanding factoring companies to provide them with the most
technologically advanced reporting systems. You may want to avoid a
factoring company that does not provide access via Internet to your
factoring data. You may also seek out a factoring company that allows
you to obtain credit decisions on line via Internet. A factoring
company that embraces new technologies will ultimately save you money.
For example, if you have to send all your invoices and a full set of
copies to your factoring company via overnight courier, you are probably
picking up the tab. If your factoring company can accept digital copies
via e-mail or can scan your originals, your packages will be less costly
to send. A factoring company that can handle your customers’ EDI system
is also a plus.
In summary, there are
numerous variables to consider when selecting a factoring company. Sure
fees are important, but often, the Devil is in the details. Ask lots of
questions. Here are a few questions we have addressed in this article:
1. Does the factoring
company have a credit department?
2. Does the factoring
company have a collection department?
3. Does the factoring
company have a long track record?
4. Is the factoring
company a specialist in your industry?
5. Is the factoring
company the right size for your company?
6. Does the factoring
company embrace technology?
If
you feel that your business would benefit by setting up an account
receivable factoring program.
Please contact us at 1 800 450 9653
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digitally date stamped and is monitored. Please do not copy without permission.
1st Commercial
Credit, a
nationwide
factoring company headquartered in El Paso, Texas. Provides accounts
receivable financing in the US, Canada, and the UK; offers
export trade finance to clients in every major world
market and can convert receivable finance transactions in 17
currencies.
Other related pages by
industry:
Factoring Temporary Staffing Companies
Factoring Medical Providers
Factoring Medical Staffing Agencies
Factoring IT Staffing Firms
1st Commercial Credit (SM) is a trademark of 1st Commercial Credit, LLC.
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