Businesses of all sizes, from family owned and operated companies to large companies with a national reach, can all take advantage of invoice factoring. This service allows companies to sell their accounts receivables to a factor, giving them immediate funding without all the complications and repayments required with a loan.
Not all invoice factoring companies are a good match for all types of businesses. This is no different than with choosing a bank or any other type of financial product or service. Making the right match between the factor and the business is all up to the business owner. Shopping around, comparing options and learning about the factoring company will help to avoid these three common mistakes.
Not Understanding Fees and Costs
All invoice factoring companies will provide an agreement for services that include the fees and costs you will incur for the service provided. It will also provide a rate for the factoring service, which will vary based on the time to collect and other issues.
Take the time to read up on all the fees. Some companies only charge one fee (the percentage) without any other costs or hidden charges. Others offer a lower fee but charge multiple additional costs for everything from application to termination.
Not Understanding Minimum Volumes
Many of the traditional types of invoice factoring companies set up for large businesses require a minimum volume of invoices to be factored per month or per quarter. Failing to meet these minimums will automatically raise fees and also may result in additional costs.
Not Choosing a Factor Experienced in Your Industry
When factors are familiar with your industry and business size and type, they are able to modify or negotiate a plan that works for your business as well as for their service.
This is ultimately the best option as it is a tailor-made funding plan. Always ask if the factor has experience in your industry before making a choice.
