Three top tips for choosing the right factoring company for your business that’s what we’re talking about today on The Money Factor. Hi I’m Ian Varley, CEO of Eagle Business Credit. Welcome to #TheMoneyFactor where we talk about business issues, and we get your money questions answered.
Three Tips for Choosing the Right Factoring Company
- Establish trust
- Find the right fit for your specific industry
- Understand your factoring agreement
In order to grow your business with the business receivables funding you need, you must choose the right factoring company. This means you must find a company you can trust, that fits your specific industry, and does not have anything hidden in their contract.
1. Establish Trust
So the first tip for choosing the right factoring company is: do you trust them? When you’re doing business with any company, it’s important to have a good relationship that’s built on trust. So, don’t be afraid to ask questions and build that relationship early on. Even if you’re just dealing with a salesperson, who maybe doesn’t understand fully about your business yet, you need to have a good, comfortable feeling with that person. If you don’t, don’t be afraid to keep asking probing questions until you get that feeling.
If you really don’t trust someone you’re doing business with, particularly a financial partner, that’s a recipe for problems down the road, in my opinion. So again, ask good questions. Be ready to really probe and say, “how is this going to work?” If the company comes up with jargon, ask them to explain it. If they can’t explain it and it’s a good question, then should you be dealing with those people? It’s important to get that trust feeling with a financial partner.
2. Find the right fit for your specific industry
So, the second question is will it work, and specifically, will it work for your business? That’s what you’ve got to find out. Ask the factoring company some specific questions. If you have certain nuances with the nature of your invoices or your customer relationships, ask them how they will deal with it. So, if you have a specific need, it’s very important that you clear that with the factoring company. Maybe ask them for some references for other clients that are in the same industry sector that you’re in. See what their experience is. There’s nothing like hearing it firsthand from a customer. You’ve got to be confident that this facility will become an extension to your business and that they’re going to be a financial partner that can really deliver on what you need.
Cash flow is what you’re coming for. You want a facility that works. Make sure you understand the costs as well. You may have a lovely proposal, but how do those costs get applied? Are there specific things that they need you to do when submitting invoices? How does their reporting look? Again, go into that level of detail. I really like it when I’m speaking to a prospect and they asked me good questions. It means they’re looking into it deeply, and they want to have an understanding of how things work. If you’re dealing with a salesperson, they really don’t get it. Ask for an operation’s person to come on the call. They should be more than happy to explain their processes. Again, you really have to understand how this is going to work and that it’s the right fit for your business.
3. Understand the agreement
Third, understand the contract that you’re signing. I get it, you’re looking for money. You have a financial partner that’s ready to provide you with a facility. Don’t rush into signing a contract. You’ve got to check it. If you have a desperate need, you will certainly want to move fast, but you have got to read that contract. There could be certain things in there, such as a term that you didn’t realize you were signing up for. Maybe they didn’t put it in a proposal. Maybe you didn’t get a proposal. Maybe there’s some additional costs that they haven’t really gone over with you. Maybe there are certain obligations that again have not been discussed.
So the contract is king. The factoring company is your financial partner. It’s going to be stacked in their favor because they’re providing you with finance. That’s fairly reasonable. You will expect that from a bank or any financial partner, but look at the detail, the actual mechanics. What else are you signing up for here? If you have a question get them to explain it. Anybody that doesn’t want to answer questions about their contract, I would be very suspicious of. They should be very open and honest and transparent about their contract and be happy to answer questions. Again having questions is not a bad thing. Spend the time at the front end. Don’t sign up for something that you then regret later.