Best Factoring Service Companies in 2018
When it comes to finding Factoring Services comparing quotes is the key to getting a top product for the lowest price.
We’ve gathered information on the top 10 Factoring Service Solutions, user reviews, buying tips, and made it easy to get the best price from companies in your area.
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Compare Factoring Service Solutions
Are you looking for the best factoring service, but aren’t sure where to start? Read here to learn how to compare factoring service solutions.
As a business owner, you know the importance of having a steady cash flow.
In fact, cash flow problems account for 29% of all business startup failures.
But what if your invoices are flying out faster than your customers are paying? With orders to fill and employees to pay, you may not have the luxury of waiting 30 or 60 days for more cash to come in.
A factoring service could be the perfect answer.
What exactly is a factoring service? How does it work? And how do you know if it’s the right choice for your company?
What is a factoring service?
A factoring service is a type of financing for businesses that need to improve cash flow. Also known as “accounts receivable financing,” factoring is a common way to get cash quickly rather than waiting for customers to pay.
What are some other advantages of using a factoring service? Consider just a few:
- Factors manage collections from your customers, giving you more time to focus on your business.
- Factoring is based on your customers’ credit, not your own credit or your business history.
- Factoring is not a loan, so you don’t incur debt or repay interest.
- Factoring can be adjusted at any time to suit your business needs.
- Factoring is scalable, which means the amount of funding you get can grow as your receivables grow.
Whatever your business needs, factoring can provide the service solutions you’re looking for.
How do factoring services work?
Using a top rated factoring service is a straightforward process.
As a business owner, you sell your outstanding invoices to a third-party financial company, known as the “factor.”
Since factoring services are not collection agencies, they’ll thoroughly research your customers’ creditworthiness. They’ll also review payment history to ensure the invoices will be paid on time. Your own business revenues and account standings will also be taken into consideration.
What determines the amount of your advance? This depends on the factoring service you choose, as well as your customer’s credit history and what type of industry you’re in. Standard advance rates start around 80% but may go as high as 95%.
After paying your cash advance, the factor will review your customers’ invoices for completeness and accuracy. When everything is confirmed, the factor will notify your customer of the service you’re using. This way, they can arrange for all future payments to be made to the factor.
Once the customer has paid the factor, you receive the remaining percentage owed to you, minus the factor’s pre-set fee (usually 1-3%).
Review types of factoring services
The process outlined above is the traditional way a factoring service operates. Some newer companies, however, may operate differently.
For example, top factoring services that cater to very small business may cover 100% of your invoices up-front. You’re then charged a set fee when you make the repayment.
Other factors may not require a notice of assignment, which means your customers never know you’re using a good factoring service. This allows you to continue invoicing your customers and receiving payments as usual. You’re then responsible for forwarding the repayments and fees to the factoring company.
Factoring services can be divided into two categories:
- Recourse factoring is the most common and cost-effective type of service. The factor funds your invoices but requires you to provide a refund on invoices that aren’t paid within a specified period of time. Rates are more competitive with recourse factoring since the business owner assumes the risks.
- Non-recourse factoring works differently. It releases the business owner from any liability for unpaid accounts. Because the factor assumes greater risk and responsibility, this type of service is more costly than recourse factoring.
Now that you know how factoring works, how can you choose the company with the right service solutions for your business?
What to look for in a factoring service
First and foremost, be sure to thoroughly research and compare any factoring company you’re considering. With so many companies to choose from, you need to be sure you’re selecting the right one for your business. A careful review of factoring services features and pricing is critical for small businesses – so examine the smallest details.
The most important things to consider are the factor’s terms, conditions, and fees. Problems can arise if your advance amount is too low or the factor’s fee is too high. You might find yourself worrying more about long-term losses than short-term solutions.
Pay close attention to the factor’s fee structures. Some companies charge a flat factoring fee based on the monthly volume of receivables. Others may charge additional fees for collateral, shipping, or money transfers. Which leads to the question – How much does a factoring service cost?
The rate you’ll pay is based on many factors, including:
- The type of industry you’re in
- The number of invoices you factor
- The creditworthiness of your customers
- The terms of the factoring agreement
Different factoring companies also offer different contract terms. Some may require only a six-month commitment, while others might want two years. Whatever the case, read the fine print so you know exactly what you’re signing up for.
You should also consider your clients’ payment history and the amount of money you’re currently invoicing. If you have a lot of invoices to sell and your clients have a solid record of on-time payment, you’re in a position to negotiate a very good factoring deal.
In general, factoring is most beneficial for businesses with a reliable customer base and a net 30 or net 60 payment structure. To get the service solutions you need, you want to find a factoring company that specializes in your business size and addresses your cash flow needs.
Factoring service solutions
If you’re one of the 50% of small business owners with cash flow problems, don’t worry. A factoring service can provide the cash you need now without breaking the bank later.
If you’re unsure where to start with your research, read our reviews of this year’s best factoring companies. Also be sure to take advantage of our free quote service to compare companies and discover the best one for you.
Have you had a good (or a bad) experience using a factoring company? Leave your comments in the box below!
Important Factors to Consider in Selecting a Top Factoring Service
The terms of any quality factoring service’s deals are obviously a prime consideration. If the reserve—the amount your business receives immediately upon purchase of an invoice— amount is too low or the factoring fee is too high, you’ll be setting your business up for unnecessary long-term losses just to cover short-term expenses. A review of the factoring service rates, funding time, and cancellation fees must be carefully examined. At the same time, consider that the dollar amount of your receivable account(s) you have to sell and the payment history of the clients who owe on those invoices will affect the factoring deals you’re offered: if you have more to sell and your clients have stellar payment records, you’ll tend to get a better deal.
Other things to look for when you’re trying to select the best factoring service for your business to partner with include the size of the companies the service usually works with, whether or not they have any industry specializations, and how both their approval and their collection processes work. Some factoring services have a minimum total invoice amount before they’ll consider doing business, and some require minimum commitment lengths ranging from six months to two years. Find a company that works with companies of your size and cash flow need and you’ll be much happier with the service you get. And because this service will be working not just with you but also with your clients and customers, make sure they’re friendly, straightforward, and have clear criteria for approving invoices and clear methods for collecting on them.
Factoring Your Way Into Free Cash Flow
When you choose a factoring service that’s right for your business and your customers, you can derive a whole lot of value from freeing up cash flows sooner rather than later. Do some shopping around, and stop letting long payment periods and unpaid invoices be a negative factor in your cash flow.