Invoice factoring makes it possible for your business to receive money that is owed to you now, rather than having to wait for invoices to be paid. A factoring company enables this by purchasing your business’s unpaid invoices at a discounted rate and receiving those payments from your clients directly. As a result, it is important for you to understand what to look for when choosing a factoring company for your business. Here are some questions and options you may want to consider.    

What is the application process for invoice factoring?  

The application process for invoice factoring is typically fast and simple, contrary to the tedious process of applying for a traditional bank loan. Most of the application process is performed by the factoring company, you just need to submit certain documentation along with the application for funding.  

Factoring companies will also review the invoices you are seeking to factor, your business bank account, an accounts receivable aging report, prior collections history, as well as some other documents for personal identification purposes. This part of the process is referred to as underwriting. 

Once your application has been reviewed by the factoring company, you may be approved for funding in twenty-four hours or less. When the transaction is approved by underwriting and all contractual documentation is signed, funding should be available to your company within days. If you need working capital fast, make sure to choose a factoring company that offers a quick and easy application process.  

The invoice factoring application process should be fast and flexible.

Choosing a factoring company with fair factoring rates.  

Factoring rates are highly dependent on the firm you choose. Therefore, you should evaluate how much you wish to pay, and how often. Depending on the company, they may either calculate costs on a daily, weekly, or monthly basis or charge you a one-time flat fee. Factoring fees tend to fall between 1% and 5% of the total invoice amount, but some companies will offer you different rates for different customers. You may negotiate terms with a factoring company and can compare options to ensure you are receiving the best terms possible. Questions for the factoring company to consider should involve the fee structure, current rates, advance amounts, and whether there will be any personal guarantees involved. Asking the right questions will allow you to be more prepared when speaking to or researching a factoring company.  

Evaluate how the factoring company will communicate with your customers.   

Since the factoring company is taking ownership of your invoices, they will need to communicate with your customers directly. Forming professional relationships with your customers allows for a smoother collections process and establishes a mutual relationship between the factoring company and the customer. Therefore, it is important to research how businesses handle their customers. Be sure to read feedback from real customers to find out about their policies and how they communicate. At CapFlow Funding, customers are informed in three different ways about making payment on factored invoices– through a notice of assignment, direct verification usually via email, and by information regarding the factoring company that is provided right on the invoice.  

Ensure you have clear communication between you, the factoring company, and your customers.

Research the factoring company’s track record.   

Take the time to conduct research on the factoring company’s policies and procedures and find a factoring company whose ideals and basic principles line up with yours. You should also read reviews and feedback from previous or current clients of the factoring company you are looking to do business with. Do not settle for a company that will not meet your expectations.