A factoring company is a company that purchases accounts receivable, such as invoices, from another company at a discounted rate. The transaction also passes ownership of all rights and risks associated with the receivables and the responsibility for collecting the money owed from the debtor.

Deciding what factoring company to use is a judgment not to be taken lightly. Several important criterion need to be addressed before selecting an appropriate factoring company. The list below details the areas you need to consider before making a decision.

Factor’s Comfort Zone – Every factoring company is different, and each has its own area of expertise. Some companies manage invoices with values of tens of thousands of dollars, while others prefer to deal with millions of dollars. Although it may seem that the processes are the same, in actual fact they are not. When contacting a prospective factor, be sure to enquire as to their typical clients invoicing values.

Monthly Minimums – The majority of factoring companies employ monthly minimum values on invoices that they will accept. If a company is unable to meet the minimum required values of invoicing per month, then that company may be billed an amount to make up the deficit. It is important to choose a company that has a minimum value way above your business’s likely accounts receivable to be sold.

Contract Duration – It is common for factoring companies to require a business to sign a year contract at least. Though a longer contract can benefit your company in terms of reduced fees, if you feel that the likelihood of wishing to terminate the contract early is high, then make sure that there are no terms and conditions in the contract that will mean your business has to pay for the termination.

Fee Structure – Not all factors will offer the same rate in terms of fees in relation to the value of invoices transferred. Invoice values of around $30,000 command transaction fees of generally around 3%, whereas for much higher levels of millions of dollars, the transaction fees will be approximately 1.5%.

Level Of Service – It is important to select a factoring company that can offer an appropriate level of service. Just because a company offers low fees, it does not mean that it will be able to offer a personable service. Most companies make the mistake of going for the cheapest option, but then learn to regret that decision. It may be best to pay a little more for a better service.

In summary, it is important to research all areas of the company you wish to be partners with and the contract that will bind you to them.

Find Out More : Cash Flow Finance Or Factoring Companies

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