Factoring or Invoice Discounting is a great way to raise cash for your business. You can release all that money tied up in your unpaid sales invoices often in as little as 24 hours. If you are already in a factoring agreement and have a really good working relationship then you might want to stop reading. But if you suspect that you could have something better then read on.
Is your factor a Waitrose or an Aldi? With a high end supermarket comes a whole experience, which helps create a perception that the supermarket discounters don’t aspire to. If you don’t like the Aldi experience then you can always go back to Waitrose.
But if you sign up to a contract with a factor, based purely on cost and then discover the service is not a good fit with your business, it may not be so easy to switch. Depending on what type of invoice factoring you are using, the choice of factoring company may also impact the way your business is perceived by your customers, your most important asset.
Being tied into a long term contract with a factoring company you don’t get on with can cost you dearly. But this can easily happen if you don’t do your research or get bamboozled by the small print.
There are lots of variations in the market. For instance, a six months trial period followed by a three month rolling contract sounds good, doesn’t it? But let’s just consider the implications of terminating the contract within the six month trial period:
You are free to leave within the six months with no exit fees; that’s good.
You will need to repay any outstanding funds you have borrowed. That’s bad! This may not be quite so easy, unless you have funds sitting in your bank account, ready to repay the funder. If you did, you probably wouldn’t have entered into a factoring agreement in the first place. Which means that you probably need to find another factor!
Of course, the contract with your invoice factoring company works both ways. That means, if you fall out with your factoring provider during the six months trial period, they can also give you immediate notice and stop funding. That’s really bad!!
So choosing a factor is a big decision.
There are a range of services and contracts offered by the factoring companies but the choice of funder is individual to every business. It pays to be aware of what’s on offer and carry out thorough research so that you can find a factoring company that is a good fit for you and your business.
Often this means doing some research, find out how quickly they collect on unpaid invoices, how polite are their credit control staff and get a real handle on their pricing structures.
Naturally, pricing is a consideration, but as you might know that the cheapest option is not always the best. Even if the headline rate looks particularly reasonable, you will need to consider other charges that the factor may have written into their agreements, such as minimum invoice fees, invoice processing fees, trust account fees, credit review fees, audit fees and so on.
These additional fees, whilst they may all be quite reasonable, add to the cost of the finance facility and you need to be very clear about the agreement you are entering into.
The security required by factoring companies can also vary from personal guarantees and warranties to bricks and mortar. Once again, this is not unreasonable on behalf of the factor but it make turn out to be risky for you.
Still confused or need more information about factoring then it might be worth giving FundingBusiness a call on 0845 570 1200.