If your business is facing short-term financial troubles, turning to a factoring company can prove a very useful way of turning your outstanding invoices into almost instant cash.
However, it is important to choose the right factoring company as the wrong one could potentially make your business finances more complicated than necessary.
Finding the best factoring company
Firstly, it is important to ensure that your company is a good candidate for money factoring. You will need to have at least £5,000 worth of monthly invoices if the use of a factoring company is to make financial sense for your business. Some factoring companies in the UK may even prefer a minimum of £10,000 worth of invoices.
It is always helpful to have long-term customers on your books, as many invoice factoring services will look specifically at the customers who owe you money in order to determine if there is any risk that they will not pay what they owe.
It is good to use a service like Companeo’s free quotations, which provide a free and straightforward search, matching your business with selection of suitable factoring companies from which to obtain a quote. You can then discuss your requirements and expectations in more detail with each company in order to determine their invoice factoring rates, as the cost of factoring is inevitably going to be important to your decision.
Since the factoring company is going to be working directly with your customers, it is important to observe exactly how the firm will communicate with your debtors. Take a look at their collection letters and ask for information regarding how an outstanding invoice is chased, giving you a better idea of how they handle the process.
Also do not forget to find out how the factoring company takes care of past-due accounts and at what stage they employ the services of a collection agency. It is good practice for your factoring company to consult you before taking legal action with any of your customers, so it can be reassuring to confirm whether or not this will be the case will all potential companies.
Is the company a good match for your business finance solutions?
Factoring companies tend to vary in the effectiveness of their approach. When doing your research it is wise to bear in mind that the best factoring company should be able to demonstrate high success rates with other companies of a similar size and stature to your own. It is a good idea to ask potential factors what exactly their clients finance – it could be anything between £20,000 and £120,000 per month. A factoring company that has experience dealing with clients of your size is evidently much more likely to provide your business with the adequate levels of service – if you turn out to be one of their smaller clients you are more likely to be overlooked in favour of more lucrative customers.
Will they provide your business with the right tools to help you succeed?
A good factoring company should offer online invoicing systems that allow you to review customer payments and submit new invoices for factoring.
A factoring company that offers electronic submission can also be very helpful as this can reduce the turnaround time drastically – even to as little as 24 hours. If your business needs cash quickly, this can make a big difference.
Lastly, enquire as to what hours the factoring company offer support for your customers, as good customer service is vital. The better invoice finance companies will have a dedicated customer service team to try to entice you to return to them for any invoice factoring services in the future.
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