Whether you are looking to sell invoices you own or you have a client that is considering factoring, choosing the right Factoring Company to fund your deals can be challenging. Here are key items to consider when…

Comparing Factoring Companies

1. Application Fee

Some companies charge a “fee” to see if they will work with you. Although we are on the fence on this one, you shouldn’t have to pay more than $100-$150. Avoid companies charging big fees to “evaluate” what you have.

2. Due Diligence Fee

Basically the same fee as #1, but just by another name in our opinion. That doesn’t mean you pay for both. One flat fee (or no fee) is ok. Any reputable company is in it to do business with you over the long haul, not make money on upfront fees.

3. Minimum Number of Invoices

Factoring companies might require a minimum number of invoices to be factored – some will even require ALL your invoices be factored. We believe you should have the flexibility to pick and choose when you need to factor. Try to find a company that does not have a minimum.

4. Reserve Amount

All factors are going to have a reserve amount. They fund a certain amount upfront (say 80%) and the difference (20%) is the reseve. A reserve is typically 20-30% of the invoice amount, depending on the transaction. Anything greater and you may want to shop around. While you get a portion of the reserve back, you don’t want too much tied up on the back end.

5. Renewal Fee

This is a junk fee that some factoring agents charge annually. Either they want your business or they don’t. If they have this, make them waive it.

6. Invoice Copy Fee

Some funding companies will try and charge you to copy your own invoice. Really? Skip this funder altogether – it is a good indication there are a lot more hidden fees.

7. Long-Term Contract

Factoring companies would love to have you sign you to a long-term contract. Although it would not be fair for them to get you going and then have you jump ship right away, it is cost of doing business. If you are going for a contract, don’t go for anything longer than 6-12 months.

8. Help Screening New Accounts

Before taking on a new account, some factors will help you screen their credit worthiness. This can be a big plus and you should look for this when choosing factoring programs.

9. Discount Fee

Of course you want a low factoring or discount fee!  Just be sure to consider the overall picture and realize some factoring companies will advertise low factoring fees to lure in business only to hit you with some of these hidden fees or contract clauses before funding.

Although there are many things to consider when choosing a Factor, the above items should get you on the right track.

It is also helpful to make sure you are dealing with a professional funding company or factoring broker. Check out our updated Directory of Factoring Companies and Services Providers for more details.