Tips for Buyers
While we feel that our factoring buyer’s guide is comprehensive, we want to leave you with a few tips that you can use to save money and have an overall better experience when choosing a factoring company for your business’ funding:
- Get a quote from multiple factors and negotiate – Small business factoring is like any other large transaction in some respects – there is usually “wiggle room” to negotiate a better deal, especially when you take the time to obtain a factoring quote from different companies. Bottom line, factors rely upon your business to stay in business, and if you have long-term needs for this type of business financing or you shop around and find a better deal at with a less-suitable factor, you may be able to work this to your advantage and save some money.
- You can negotiate for more money up front – Just because a factor states that they offer 75% to 80% of the total value of your accounts receivables up front does not mean that you cannot get 90% initially. Factors will generally allow for a bigger up front advance in exchange for a higher discount rate.
- Use brokers to find the best deals – Brokers can be valuable assets for companies who do not have the time or expertise to locate a suitable factor for their business’ accounts receivables financing. In exchange for a small fee, brokers can help you find a factor that will work with you in your situation, and usually know the companies to avoid, which can save you countless headaches as well as temporary financial woes.
- Use fewer invoices for higher amounts – In many cases, business' do not need to finance all of their monthly invoices. By submitting fewer, higher-dollar invoices to factors instead of several low-dollar invoices, you are decreasing the factor’s workload and thus may be able to receive a lower discount rate.
- Notify your clients beforehand – While factors do, indeed, notify your clients that payments should be made out to them instead of to your business, it’s generally recommended that you inform your clients of this change of payment venue yourself; this can help to alleviate any unpleasant surprises and allows your clients to plan for these changes ahead of time.
- Opt for an open-ended factoring contract – While you may be looking for one-time funding through invoice factoring today, there is always the possibility that you will use factoring as a business financing option in the near future. By locking in an open-ended factoring agreement, you can save yourself hundreds or even thousands of dollars in the future by bypassing the need to pay setup fees for additional advances through the same company.
Choosing the right factoring company for your business is an important decision, one that has the potential to catapult your business to the next level. Factoring is a viable solution that has a large number of benefits that work for a variety of businesses today, both large and small.
We hope that our business-factoring guide has shed some light on the process for you. We have outlined what to expect, what to know in advance as well as some of the common pitfalls for this business financing option. When you are ready to make the move, feel free to get a quote from reputable factoring service providers in your area.