Affordable Factoring

Comparing Invoice Factoring Companies

In today’s economy more and more organizations are turning to Invoice Factoring Companies or Factors to help them keep up with their cash flow and working capital requirements.  How does one compare all the different factors that are out there?  There is a huge misconception in the business community that all invoice factors are basically the same and all one really needs to compare is the factoring rate and the advance percentage.           Although the factoring rate and advance percentage are very important, comparing only those variables can be a huge mistake that may end up costing your company dearly.

Other questions to ask when comparing invoice factoring companies are:

• Is there a monthly minimum that you are required to factor, and if so what is the fee if you do not hit that minimum?
• Can you pick and choose what invoices you factor, or do you have to factor all of them?
• Are there any other fees associated with factoring with a particular company such as: due diligence fees, annual fees, wire transfer fees, documentation fees, and any other “one time fees”?
• How much experience does the factoring company have working with clients from your industry?
• What is the process for approving a new client?
• What are the procedures of a particular factor when they need to interact with your clients?
• How much time does it take from when you send them an invoice and have the funds advanced to your account? 
• What kind of reputation does the factor have?
• What is the term of the agreement between your factor and your company?
• How much notice must you give to end the agreement? 
• Are there early termination fees? 
• What time period must pass before you can change factoring companies or renegotiate your terms?

Often the best way to find out this information is to speak to people who have factored there invoices with a particular company, and find out which factoring companies have good reputations.  One can also ask for referrals from accountants, lawyers, and people in the commercial financial services industry.  Finding out all this information may seem like an incredibly time consuming task but it may save you time, money, and headaches later on.

We will address each of these questions and more every couple of days over the next few weeks.  As always if there are any specific questions about factoring invoices please do not hesitate to contact us at www.affordablefactoring.com .

Comparing Invoice Factoring Companies (part II)

     Last week we discussed the importance understanding just how different invoice factoring companies can be and how one needs to be armed with the knowledge on how to properly compare them.  We listed a dozen questions to ask an invoice factoring company other than the usual advance percentage and the factoring rate.  Today I am going to go into greater detail about the specifics of the first two questions:

• Is there a monthly minimum that you are required to factor, and if so what is the fee if you do not hit that minimum?
• Can you pick and choose what invoices you factor, or do you have to factor all of them?

           A monthly minimum is the amount a company guarantees they will factor every month.  If the company does not reach the monthly amount they have to basically pay the difference in fees that they would have paid if they achieved the minimum.  This obviously does not affect a company if there cash flow requirement as well as their monthly sales volume easily meets the minimum requirement.  However, if a company does not meet the sales volume that month or their working capital requirement is met without needing to factor the receivables then they are paying for a service they simply do not need.

In most instances when a company is negotiating a factoring agreement and they are making multiple Invoice Factoring Companies compete for their business this monthly minimum is waived.  Removing this monthly minimum can be vitally important if a company wants to eventually stop factoring and meet their cash flow requirement by obtaining a line of credit from a traditional bank.

            Some Invoice Factoring Companies require their clients to factor 100% of all their receivables.  This requirement, again, does not affect a company if their working capital requirement dictates that they factor 100% of their receivables.  However, if a company does not have the cash flow need to factor all of their receivables, they are, again, paying for part of a service they simply do not need.

            In most cases when a company is negotiating with a reputable Invoice Factoring Company and are making multiple Factors compete for their business this requirement can be removed from a factoring agreement or contract.  This can be vitally important because the money to pay those extra fees every month should stay in the pocket of the business owner.

We will address the rest of these questions and more every couple of days over the next few weeks.  As always if there are any specific questions about factoring invoices please do not hesitate to contact us at www.affordablefactoring.com .

Comparing Invoice Factoring Companies (part III)

Previously we discussed the importance understanding just how different invoice factoring companies can be and how one needs to be armed with the knowledge on how to properly compare them.  We listed a dozen questions to ask an invoice factoring company other than the usual advance percentage and the factoring rate.  Every blog posting over the next few weeks will cover in greater detail those questions.  Today I am going to go into greater detail about the specifics of the third and fourth questions:

• Are there any other fees associated with factoring with a particular company such as: due diligence fees, annual fees, wire transfer fees, documentation fees, and any other “one time fees”?
• How much experience does the factoring company have working with clients from your industry?

The total amount and type of fees that a particular Invoice Factoring Company or Bank will charge should be written out clearly and understood early in the feeling out process between your company and the factor.  All too often I hear stories about how a company gathered all sorts of documents, filled out an application, waited to have the Invoice Factoring Company investigate their clients and then come back and find out that there is a high due diligence fee, then after the fee is paid they receive a proposal that has a facility fee, or a documentation fee,  an annual maintenance fee, or any number of “one time fees” or factoring pitfalls. 

In most cases if an Invoice Factoring Company knows that you are comparing them to several other Invoice Factoring Companies they may waive these extra fees or at least significantly reduce them.  All too often they will not convey to you that these fees are coming up unless you ask them.

The question about how much experience does your Invoice Factoring Company have working with clients from your industry can be very important simply because they will be interacting with your clients in some degree or another and their procedures and behaviors will be a reflection on your company.  A business owner who owns a staffing company may not want their clients to be contacted, (especially in relation to collections of accounts receivable), by an Invoice Factoring Company that specializes in only factoring trucking companies because if an Invoice Factoring Company is not familiar with common systems, procedures, and controls within an industry it may reflect that they are not very professional and therefore reflect bad on your company and possible result in the loss of business.

We will address the rest of these questions and more every couple of days over the next few weeks.  If you have any experiences, either positive or negative, with the Invoice Factoring process and would like to share them with other business owners, please share your comments with us.  As always if there are any specific questions about factoring invoices please do not hesitate to contact us at www.affordablefactoring.com or if you would like an invoice factoring fast quote simple give us a little information about your company and it will be done.

Comparing Invoice Factoring Companies (part IV)

     In our last few blogs we again discussed the importance of understanding just how different invoice factoring companies can be and how important it is to know how to properly compare them.  We (during blog #1) listed a dozen questions to ask an invoice factoring company other than the usual advance percentage and the factoring rate.  Again, every blog posting over the next few weeks will cover in greater detail those questions.  Today I am going to going to discuss in greater detail the specifics of the fifth and sixth questions:

• What is the process for approving a new client?
• What are the procedures of a particular factor when they need to interact with your clients?

The process for approving a new client can vary greatly from one invoice factoring company to another.  Typically the approval consists of simply looking at your client’s time in business and running a Paydex score through Dunn & Bradstreet to determine how your new clients typically pay their bills.  They also can search out all available public information on your client and see if there are any major, state or federal liens on their business or if they have been, or are involved in any major litigation.  Some invoice factoring companies may even run more extensive and time consuming background checks on your clients company.  This process can literally take minutes or days depending on the invoice factoring company you are working with.  After researching your clients the factor can put a limit on how much they will factor each month with that particular client or they may not approve them for factoring at all. 

Knowing the client approval process that a invoice factoring company uses can be very import if your company has a monthly limit with one of your clients and it is likely that you may need to exceed that limit or risk the loss of business.  All too often business’ enter into factoring agreements without reading and understanding that limits on factoring for a certain client may exist.  The process of re-evaluating your clients’ credit amount should therefore be clearly understood.

      How an invoice factoring company interacts with your clients should be understood.  Most factors first contact with a client is in the form of a Notice of Assignment Letter, or NOA.  The NOA typically states that your business and the invoice factoring company has entered into an agreement and when your company’s invoices are paid, the payment will be sent to a different address or different account and payment of your company’s invoices anywhere else will not constitute payment of your indebtedness.

The next contact between the invoice factoring company and your client is typically some type of acknowledgment of your company’s invoice or invoice verification.  Invoice verification can be made by telephone, fax, email, or writer letter, (usually whatever you or your client prefers).  Often that is the only contact between your clients and the invoice factoring company unless there is a dispute of the invoice or payment is being delayed beyond the terms of the agreement.  It is very important for a business owner to know the procedures a factor follows when there are disputes or collections because those procedures can possibly damage a relationship with your client because of the simply fact, that is previously stated in this blog, actions an invoice factoring company take may reflect that they are not very professional and therefore reflect bad on your company and possible result in the loss of business.

We will again address the rest of these questions from the first blog and more every couple of days over the next few weeks.  As always if you have any experiences, either positive or negative, with the Invoice Factoring process and would like to share them with other business owners, or you would just like some advise on factoring your receivables, please share your comments with us.  As always if there are any specific questions about factoring invoices please do not hesitate to contact us at www.affordablefactoring.com .  As always if you would like a factoring fast quote click here. 

Comparing Invoice Factoring Companies (part V)

In our previous week’s discussions we have touched on the reasons to arm yourself with the knowledge needed to properly compare invoice factoring companies and find a factor that works best with your company.  The work involved in accurately comparing Invoice Factoring Companies may seem very time consuming and even tedious but in our experience it is very important to a company’s bottom line.  In this week’s blog posting we are going into detail about the sixth and seventh questions to ask while comparing invoice factoring companies. 

• What are the procedures of a particular factor when they need to interact with your clients?
• How much time does it take from when you send them an invoice and have the funds advanced to your account? 

The reason it is important to know the particular procedures that Invoice factoring Company’s use when interacting with your clients is simple.  When an Invoice Factoring company interacts with your clients they are usually viewed as an extension of your company.  If a Factor acts very professional your company may be viewed as professional, but if the Factor asks abrasive, rude, or unprofessional your company may be viewed that way and you may even loose future business.  You may have been developing a very professional relationship with a particular client for years and now all of a sudden an Invoice factoring company will be contacting them in order give them a notice of assignment for your accounts receivable and where they should send payment, or they may be calling them to verify invoices that have been sent, or they may be making a collection call for payment on a particular invoice.  In most cases Invoice Factoring Companies act very professional and have experiences dealing with all types of clients, and many factors may even ask how you would like them to deal with your clients in certain situations.  You may want to have an agreement with a particular Factor that your company will send collection letters or make collection calls and the Factor should stay “hands off”, at least for the first 90 days.  In any case it is a simple question to ask a Factor, and may end up being an important question to ask.   

The amount of time it takes for an Invoice factoring company to advance funds against an invoice is very important for obvious reasons.  If you send an invoice before noon you should have the funds advanced to your bank account by the next business day with most reputable Invoice Factoring Companies.  Things that can legitimately hold things up are an inability for the factor to verify the invoice, or the client, (or account debtor) contesting the invoice, or administrative issues with either the sending or receiving bank making the wire transfer.  If a factor has a policy of not advancing the funds in that time period they should let you know of their policy in writing and then let you decide what Invoice factoring company to contract with so you have the proper working capital and working capital forecasting. 

We will continue our blog next week and address the other questions.  As always, if you have any questions regarding this blog or and factoring questions in general please do not hesitate to call, email, or address a question in the contact us section of our website, www.affordablefactoring.com or you can ask a question or make a comment in the Invoice Factoring Fast quote section of our website.

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