How to choose the best factoring company

18/07/2008

It's not always easy to determine which factoring company will suit the needs of your business. Fundamentally, there's a common principle amongst them, in that they enable your business to draw against your invoices straightaway and hand credit control over to somebody else.

The importance of due diligence should not be overlooked when you're choosing the factoring company that will work for your company. You need to make sure the relationship between you and the factor will work, because your business is investing in that relationship in order to improve cashflow and facilitate growth: two crucial elements of a successful business.

The first thing to explore in a potential factoring company is whether they require you to commit to a monthly minimum. This isn't necessarily a bad thing, as factors frequently offer more competitive rates to companies who offer such commitment. The potential disadvantage, however, is that if your factored volume drops, your company would have to pay the difference in lost fees.

You should also question what level of experience a potential factor has in working with a company of your size. The practicalities of running a very large account are different to those of running a small account, so you need to be sure your factor has the requisite experience.