Many business people say that improving their cash flow through factoring has been one of the best decisions they have made for their company. They like the peace of mind that comes with having the working capital that they need for maintaining their operations. They can focus on business growth when they get paid right away for work that’s been completed, rather than having to wait weeks and months for each check. They are glad to let the factoring company handle all their collections chores – no more calling customers constantly asking for their payments.
Because the stakes are so high for finding reliable sources of working capital, choosing the best factoring company for your needs is a critical financial decision. If all factoring companies were the same, then picking the right factoring partner would not matter. However, too many business owners have learned the hard way and missed out on the benefits they could have accrued with the right factoring partner.
Let’s take a look at four common mistakes in choosing a factoring company to help you maintain a steady cash flow and grow your business.
#1 Going for the lowest factoring rates without asking about hidden fees.
If you’ve been lured in by low advertised factoring rates, but ended up spending more on hidden service fees than you could ever have imagined, don’t feel bad: you’re not alone. Unusually low rates are a common gimmick for less-than-reputable factoring firms, but remember: everyone in the factoring industry is working with the same cost of borrowing. That means that a factoring firm advertising atypically reduced rates will still have to recoup their costs somehow. The cheapest factoring rates do not always translate into real savings. Charging extra fees for a variety of services, including hidden costs that were not initially disclosed to you, will get those factoring firms what they need to make their costs and revenues work.
#2 Forgetting that “you get what you pay for.”
What your father probably told you years ago still rings true: A bargain is not always a bargain in the long run. You have to use good judgment to analyze the true costs of different factoring programs. For instance, many factoring companies provide credit checking services, collections services, and back-office reporting functions at no charge. Some cut-rate factoring companies don’t protect you against business losses with an in-house credit bureau and don’t work your billing and collections as professionally and thoroughly as they could. Over time, the quality and reliability of an outstanding factoring company that is committed to your success pays off.
#3 Not asking the right questions.
Time and time again, the informed consumer makes the best decisions. When you’re “interviewing” a potential factoring partner, be prepared to ask lots of questions. Find out how long they have been in business, ask about their Better Business Bureau rating, and determine exactly what the factoring fees cover. Request a list of client references that you could call for an objective perspective on how that factoring company will perform.
#4 Working with a factoring company that does not specialize in your industry.
This mistake goes back to the misconception that all factoring companies are the same. While some factoring companies will pursue you as a client regardless of their areas of expertise, reputable firms will be upfront with you about their ability to deliver a customized factoring program for companies in your industry. You have the right to choose a factoring company with factoring professionals who have helped many clients in your field succeed.
Keep these common mistakes in mind as you explore different factoring companies. Picking the right one can save you money and increase your profitability. Contact the factoring professionals at Interstate Capital, one of North America’s top factoring companies since 1993, to learn more about how you can benefit from factoring your invoices today.