Affordable Factoring

Factoring Pitfalls

Almost all factoring pitfalls can be avoided if you deal with a reputable factor and clearly read and understand the contract.  Other factors may try to convince their clients that the practices they use are used by everyone and they are not a "big deal".  This simply is not true, factors can be very different from one another.  In our opinion these are the major pitfalls that companies need to avoid:

• Incurring any type of fee that is not clearly written in the contract or working agreement.  You should insist upon knowing ahead of time about any fee you may be charged for any reason.
• Having to pay a monthly minimum fee.  This occurs when a factor requires you to pay a minimum fee each month regardless of the amount of your client invoices you want factored.  This fee is very beneficial to the factor for obvious reasons but basically means that you are paying for a service that you are not using. 
• Another major pitfall to avoid is when a factor requires you to factor all your invoices.  The ability to factor your clients’ invoices should be thought of as a tool at your disposal to be used when it is financially beneficial to increase your cash flow by factoring.  If you are required to factor all your invoices regardless of your cash flow need, you are wasting your company’s money!
• They last major pitfall that business owners fall into is not understanding how a factors monthly rate affects their bottom line.  A business owner should understand exactly how much they are paying, and how much they would save by having a more affordable rate.  In many cases a business owner would save 10’s of thousands of dollars a year.  Do you understand how a rate that was lowered by as little as a quarter point or even an eighth of a point would effect your business?  How much more money would your business have?  How much of an increase in sales does it take to make up for the extra amount you may be spending each month?

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