Invoice factoring can be a helpful solution to small business cash flow problems due to slow-paying customers. The lender you choose to work with makes a big difference in the smoothness of your factoring experience, however.
What to Expect from a Factoring Company
Factors purchase your accounts receivable at a discount. You receive the funds immediately for your business needs. You are not borrowing money, it is being advanced to you against your accounts payable. The invoices you’ve chosen to factor will now be paid directly to the factoring company, and you won’t need to spend time or money trying to collect from those customers.
How to Choose a Factoring Company
Here’s how to find the best factor company for your needs:
Outline your goals: Consider how you’ll be using the funds and the value you’ll receive from that use. Match the factoring company’s fees and repayment requirements to your business’ unique needs. Make sure that factoring is cost-effective for your business, given what you expect to gain from the process.
Research and evaluate factors carefully: Like any business, you plan to deal with, check out the factor’s website and FAQ page to learn about their factoring terms. Check reviews to see what other small business owners have had to say about the company. You should expect a simple application, variable rates, and flexible timelines.
Ask detailed questions: Talk via phone or in person, or perhaps video chat if you are not local. Video chat can help you get a sense of the individual’s honesty and openness. This helps you gauge how easy (or difficult) it will be to communicate with the factor going forward. Your questions should include:
- Have you worked with small businesses in my industry?
- What are your fees and terms for factoring?
- What are your factoring options?
- What is the process if a client invoice is not paid?
- Do you have other services that might benefit my business?
- What references can you offer?
Contact a few different factors to find the best fit. The factor will be your partner, helping your business to grow. The factor is providing you a service and you have a right to shop around, so don’t feel pressured into applying with the first one. Find a company you trust and whose expertise gives you confidence.
If you’re considering invoice factoring, talk to the experts at LMC Alternative Business Capital. Contact us today.
