Types of Factoring Company Programs
Invoice factoring, or receivables factoring, enables business owners to sell their outstanding invoices to a factoring company for a cash advance within 24 hours. It eliminates the wait for customer payment and allows you to access funds instantly. Business owners often use this financing method to cover payroll and other expenses, take on larger contracts, purchase new supplies, etc.
Recourse: The most common type of factoring service. Recourse rates are the most competitive. With recourse, the business owner assumes the risk if their customers fail to pay the factor.
Non-Recourse: With non-recourse factoring, the factoring company assumes the risk of non-payment. Business owners will not be liable to repay the factor if their customers fail to pay. The fees tend to be higher due to the larger risk to the factor.
Spot Factoring: Factoring a single invoice on a one-time basis.
Comparing Top Invoice Factoring Companies
With so many options, the search for the top factoring company can be overwhelming. What seems like a great deal at first glance, may prove to be anything but. If you’re new to using factoring as a financing option, there are a few things to keep in mind as you weigh your options. Some include extra fees, contract terms, flexibility and experience with your particular industry.
We recommend speaking to multiple factoring companies to compare services and rates. Read on to find out exactly what to look for when you’re reviewing each company.
FEES
Read the fine print of your proposal. Pay attention to the advance rate, factoring fees, reserve requirements and note any additional charges including processing fees, ACH fees, application fees, etc. Compare your proposals – what seems like the lowest fee can easily prove to be the most expensive thanks to additional costs.
CUSTOMER SERVICE
Prompt and courteous telephone and email support are a must, as well as the potential for face-to-face meetings when needed. Since factors deal with your customers, you must ensure that they will do so in a manner reflective of your company. Before selecting a factoring company to work with, search for customer reviews and don’t hesitate to ask the factoring company for references.
FLEXIBILITY
Do you plan to factor all of your clients? Would you prefer to pick and choose which customers to factor? Do you need accounts receivable factoring on a seasonal basis? If you’re not comfortable signing a year-long contract, don’t do it. Plenty of factors offer month-to-month agreements with no minimum volume requirements. Would you prefer non-recourse factoring services? If flexibility is a must-have for funding, we can help you find it.
INDUSTRY EXPERTISE
In factoring, no company is one-size-fits-all. In order to choose the right factoring company, find one that has direct experience with businesses like yours. The process of factoring invoices is standard, but some industries may require slightly different programs and services. For example, a factoring company for trucking will provide fuel cards, fuel advances, and other benefits for truckers. Many staffing-focused factors offer back office support for staffing firms. In addition to industry experience, the best factoring businesses are well-established and will have a proven track record of success.
INTEGRITY
This one is harder to quantify and even tougher to get a feel from the get-go. Nonetheless, it is extremely important. You want to choose a factoring company who does what they say they will, treats your customers fairly and doesn’t hit you with hidden factoring fees.
When it comes to selecting the right accounts receivable factoring company, we recommend speaking with at least 4-5 different companies to get a feel for what is a fair rate and program.
We Find the Perfect Factoring Company for Your Business
Finding the right partner can be challenging, but Factor Finders makes it simple. By learning about your business and how to best meet your goals, we can help you find the best factor for your unique needs. Contact us, tell us what you’re looking for, and we’ll help you get it.
We have relationships with many different funders and best of all, our factoring services are 100% free to you.
How Much Does a Factoring Company Charge?
Here’s a basic example of a factoring fee on a 45-day invoice:
Invoice amount: $10,000
2% for days 0-30
1% for days 31-40
1% for days 41-50
Factoring fee: $400
The rate you’ll pay is based on a variety of factors:
Industry – Some industries are considered higher-risk by factoring companies – mainly healthcare and construction. On the other hand, industries such as transportation, temporary staffing and manufacturing are less risky and will have lower fees.
Volume of invoices – The more invoices factored, the lower the fees typically are. Many factoring companies offer volume discounts, so your fee shrinks as your business grows.
Time outstanding – The length of time your invoices remain outstanding can impact the fee.
Type of program – Non-recourse factoring programs often contain slightly higher fees than recourse.
Undoubtedly, factoring costs are a big part of your decision when choosing a funding company to work with. As mentioned above, be mindful of additional fees and charges in your proposal. What seems like the cheapest rate may prove to be anything but!
Let Us Find You the Perfect Factoring Company for Your Business
HOW TO FIND THE BEST FACTORING COMPANY
If there’s one thing we know – it’s factoring. We partner with factoring companies in the United States and beyond. Our hand-selected network of factors can fund nearly any industry and businesses of any stage and/or size. If you’ve been declined for other types of funding, or even by other factoring companies that weren’t the right fit, get in touch with us. We know exactly where you belong.
COUNT ON FACTOR FINDERS
“PROBLEM” INDUSTRIES? WE’LL GET YOU FUNDED!
Factoring for most industries is pretty straightforward—provide the service, bill the client, send the outstanding receivables to the factor. However, there are a few tricky industries that only specialized factors are equipped to handle.
Two examples are healthcare factoring and construction factoring. These particular industries have unique billing structures and rules that make it difficult for most factors to fund their deals. However, specialized factors are more than happy to take these deals—you just have to know where to look. Thankfully, we do!
Contact us. We can get your healthcare and construction company funded! Our network of financing partners fund a broad range of industries. Progress billing? Insurance receivables? No problem. If you have cash tied up in unpaid invoices, we can help.
Improving Cash Flow for Trucking Industries
Choosing the right factoring company for your trucking business can have a significant impact on improving your cash flow. When it comes to trucking, cash flow can often be a challenge due to long payment terms that can take anywhere from 30 to 90 days to receive payment for your services. This can create a strain on your finances, making it difficult to cover essential expenses such as paying your truck drivers and maintaining working capital.
Freight factoring services have emerged as a popular solution for trucking companies and small business owners in the industry. These services offer a way for you to receive payment sooner, bridging the gap created by delayed customer payments. By partnering with a reputable factoring company, you can access funds from your unpaid invoices, providing you with the necessary cash flow to meet your financial obligations.
One of the main benefits of choosing the right factoring company is that it allows you to receive payment for your services without taking on additional debt. Instead of waiting for customers to pay their invoices, the factoring company will advance you a significant portion of the invoice amount upfront. This enables you to have immediate funds to cover expenses, such as fuel costs, maintenance, and payroll.
How Freight Factoring Works
Here’s how the freight factoring process works:
- Submitting Invoices: As a trucking company, once you have completed a delivery for a customer, you generate an invoice for the services rendered. Instead of waiting for your customer to pay, you submit these unpaid invoices to a freight factoring company for consideration.
- Verification: The factoring company reviews your invoices and conducts a credit check on your customers. They assess the creditworthiness of your customers rather than focusing solely on your own credit score. This is because they want to ensure that your customers are likely to pay the invoices.
- Advance: Upon approving your invoices, the factoring company provides you with an upfront advance, generally a percentage of the total value of the invoice. This immediate cash injection helps cover your business expenses and provides financial stability.
- Collection: The factoring company takes over the responsibility of collecting payments from your customers. They handle the communication, follow-ups, and collection efforts, allowing you to focus on running your business.
- Fee Deduction: Once your customers make their payments, the factoring company deducts their fees from the collected amount. These fees typically include a discount rate (a percentage of the invoice value), which is the cost of factoring, along with any other applicable charges.
- Remaining Reserve: After deducting their fees, the factoring company pays you the remaining balance, often referred to as the reserve amount. This is the difference between the advance you received initially and the amount collected from your customers.
Working with Factoring Brokers
One way to streamline the process and ensure that your company’s needs are met fully is to use the services of a factoring broker. Factoring brokers, like Factor Finders, are third-parties that match clients with the ideal factoring company for their needs. The service is free for clients; it’s the factor that has to pay the broker.
For a company new to invoice factoring, there are benefits to using a broker like us. We have a large network of factors to fund any deal, so the process moves very fast. Typically, a factoring broker will put you in contact with best factoring company for your funding needs within minutes. We do the shopping for you by connecting you with a factor that offers exactly what you’re looking for.
