OK you have established that you need a factoring company- but how do you choose which factoring company to use? There are the big brands such as HSBC and Lloyds TSB which offer factoring services but there are also many other smaller more specialised factoring companies.
A third type of factoring company is factoring brokers which often get paid by a factoring company through commission.
Different factors will take a different view on what types of business they want to get involved with and what they perceive as risk. It is therefore worth looking around if you get initially turned down.
Save your business money by comparing factoring company prices.
Questions to ask the prospective factoring company:
- What procedures does the factoring company use? Do these procedures suit your needs? Are they easy to use?
- One of the most important questions is how much will it cost. Factors usually charge by taking a percentage of the value of the invoices they are factoring. Make sure you fully understand all the charges and how they work.
- Does the factoring company offer any leverage against your debt book and how much leverage do they offer? What kind of interest will they charge for this leverage?
- Does the factoring company have a good reputation for collecting money quickly and efficiently? Try speaking to some of their current clients in order to get a reference. You could also try looking at some online business forums to see if people give recommendations.
- The factoring company will be dealing directly with your clients and customers, so you need to make sure the factoring company will act in a professional and polite manner. The last thing you want is the factoring company to succeed in collecting the debt but your customer to refuse to do any further business with you because they are so annoyed by the factoring company .
- Does the factoring company understand your particular business sector? Some factoring companies specialise in particular sectors or understand some sectors better than others. Does your particular sector require any specialist knowledge in order for the factoring company to work successfully?
- What is the period of notice you need to give the factoring company?
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