Top 10 Tips For Comparing Factoring Offers
These are our top 10 tips about how to compare factoring offers from different factoring companies:
- What Service Is Being Offered - what kind of service is being offered. If it is recourse invoice factoring that means that you do not have bad debt protection and if a customer fails to pay you will have to repay any initial payments you have had against their invoices. If it is non recourse factoring that does include bad debt protection. Talk to the factoring companies sales representative and establish exactly what product or service your are buying and what that will include.
- Exactly What Will Factoring Cost - the charges quoted for factoring can vary widely and can be dressed up in various ways to look more attractive. The most important thing is to work out the cash value of all of the charges that are going to be incurred each year. Don't forget to add on the discount charge (similar to interest charged on the outstanding balance of funds used) and to include estimates of any additional charges that you might incur e.g. for bank transfers.
- Who Is The Factoring Company - you should look into the factoring companies that you are proposing to use. Are they backed by major organisations such as banks or well known brands? If not you could find they are sold or worse still they could fail causing your business problems. Do they have large numbers of existing clients? Are they members of industry associations?
- Additional Security - what additional security are you requried to provide. In some cases personal guarantees will be required or the factoring company may want a charge over property. The additional security required should be compared between the various offers.
- Termination - how do you go about giving notice of termination and how much notice do you need to give? Are there minimum periods which you have to stay in the agreement for? Find out what the charges would be if you choose to leave each factoring company at some point in the future.
- Service Levels - talk to the factoring companies about their service levels. Everyone says they provide good service levels but you need to look deeper than that. You could ask to speak to some other clients that already use them or they may be able to provide you with independent research confirming what their clients think of the service they provide. Better still talk to a factoring broker who will be able to give you guidance about differing service levels between factoring companies.
- Cash Allocation - ask the factoring companies how much cash they have unallocated at any one time and divide that by the number of factoring clients that they have. This will tell you how efficiently they are able to allocate the cash received from their client's customers. This will be important once you are factoring because as soon as your customers pay you want to get the benefit of that cash. If it is sitting in the factoring company's account, unallocated, for long periods of time, it will impact on your cash flow.
- Collections Procedures - find out the procedures that the factoring company uses to collect thier clients outstanding sales invoices. Will they be chasing all your overdue debtors or just the top few - this could make a huge difference to the amount of additional work that you have to do to collect in your outstanding sales invoices.
- Credit Cover Available - if you are opting for non recourse i.e. with bad debt protection, find out if the factor will be able to provide credit limits on all of your major customers. If they can't this will means that you will not have bad debt protection on any customers that they cannot write a limit for.
- Location of Support Staff - lastly, find out where your support staff are going to be based. If they are in the UK locally you will have easier access and more chance of building up a relationship with them than if the company uses overseas call centres.
Getting Factoring Quotations
Whilst not comprehensive, hopefully our top 10 tips for comparing factoring offers will be of help to you. Factoring can release the cash that is tied up in your unpaid sales invoices, improving your cash flow. If you need to get some factoring quotations we can do that for you: REQUEST AN INDEPENDENT FACTORING QUOTATION SEARCH