One of the most common mistakes that a business owner can make in selecting a factoring service is to choose just any company. One of the big advantages to factoring, over working with a bank or a financial institute, is that you can choose a company that doesn’t need to be local or even located in your state.
With this in mind, it is very important for a business to evaluate and assess the different benefits of working with commercial factoring companies. This even includes businesses currently working with a factor but that may have a level of dissatisfaction with the rates, fees or the customer service.
Check Rates and Fees
Rates and fees will be an important consideration with commercial factoring companies, so this is a good place to start. Look for a company that offers a clear, concise and transparent explanation of the fees they will charge as well as the factoring rate.
There are companies that charge fees for everything from processing your application to terminating the contract. Some companies also change rates and charge additional fees if your business doesn’t meet monthly or quarterly accounts receivables volume requirements.
When making comparisons don’t just look at the rate, consider any fees that are also required to use the service.
Duration of Contracts
Many of the large commercial factoring companies require a business to sign a long-term contract. This may be up to a year and there will be considerable additional penalty fees should you terminate the contract prior to the end date.
Additionally, these contracts will usually have the minimum volume requirements that also lock in, resulting in significant penalties on top of the high cost of termination.
Look for factors that do not require contracts and that don’t charge application or termination fees. These companies offer highly competitive rates and none of the additional costs, hidden fees and long-term contracts.
