As a business owner, one of the main challenges you are faced with is maintaining consistent cash flow. That can be very tricky, especially if there are a lot of unpaid invoices and you want the business to continue running smoothly. In this case, you may be forced to go for invoice factoring.
Invoice factoring basically means turning outstanding invoices into cash. You sell your outstanding invoices to an invoice factoring company and they give you cash your business needs to keep going. Choosing the right invoice factoring company is crucial if you want to get a good amount of money because these companies will give you a varying percentage of your total invoice.
So if you want to factor your invoice and you are still stuck on which invoice factoring you should choose, here are some of the top things you need to pay attention to when choosing business factors.
- Industry expertise
Of course, the most important thing you need to pay attention to when choosing an invoice factoring company is industry expertise. Factoring companies generally come in various shapes and sizes. When looking for an invoice factoring company, you need to choose the one that understands your business model and your industry.
Getting the right company will help ensure that everything runs smoothly. The last thing you want is to spend time explaining your daily business procedures to a factoring company that is not familiar with your company’s model. You probably don’t have that time. This is why it is important for you to choose an invoice factoring company that already understands your industry.
Stability is also another crucial factor you need to pay attention to when choosing an invoice factoring company. It is imperative to secure funding from an established factoring company. Working with a factoring company with good reputation is equally as important as working with a factoring company that understands your business model.
The best way to go about this is by choosing a factoring company allied to the International Factoring Association [IFA]. Generally, factoring companies affiliated with the IFA comply with business practices and ethic codes. Do your research on the IFA website to ascertain that the factoring company you intend to work with is affiliated with the IFA.
Of course, with anything you are doing that involves money, you must pay attention to the price. Factoring companies also have varying pricing. So, before you rush into discussing numbers, it is good to understand what you are getting yourself into. Understand how the company is structuring its fees. When the company advances money on receivables, it is making a legal purchase of your invoices at a discounted price. The rate can be a one-time flat fee. It can also vary depending on how long the company will own your invoice.
Fees charged by the invoice factoring company usually depend on factors, such as the average size of invoices, contractual commitment, average monthly purchase volumes, etc. In addition to that, the company may also charge extra fees for their additional services, such as performing background and credit checks on account debtors. So, before you go ahead and sign any agreement with a factoring company, you should understand their fees and figure out if you are comfortable with them.