When looking for a factoring plan, cost is one of the most important variables that business owners seem to focus on. This makes sense, because many prospects have cash flow problems, and this makes them very sensitive to pricing differences. However, most business owners think that the most effective way to get the best best factoring rates is to call as many factoring companies as they can and submit as many applications as possible. More often than not, this strategy will waste your time and not get you what you want.
The right strategy
From a factoring company’s perspective, rates are associated with risk. This means that if they perceive the client to be risky, they will charge higher rates to compensate for that. However, if they perceive the client to be less risky, they will lower their rates. The right strategy to get the best rates involves doing two things:
- Select the factoring company that has experience with your industry
- Presenting your company and your application professionally
Finding the right factor
Determining if a factoring company has experience in your industry is relatively easy – all you need to do is ask them. However, it’s always a good idea to ask some in depth questions to verify that your financing company really knows about your industry. For example, if you’re in the transportation industry, the financing company should understand all the necessary documentation that is needed to deliver and accept loads. Additionally, the factoring company should be familiar with all the major shippers and carriers and their procedures. Lastly, it also helps to ask them for references that are in your industry and that have been with the factoring company for at least one year.
The application process
Once you have selected which factoring companies you’re going to apply to, the second step is to actually submit the applications. This is where most prospects go wrong. It’s common for prospects to turn in sloppy applications that are hard to read and are missing important information. Most factors see this as a troubling sign and will adjust their rates accordingly. You should always submit a well-crafted application that is easy to read and has all the required information. If any information is missing, you should make an effort to note that on the application, explain why it’s missing, and advise the factoring company as to when they will receive it.
What if you have financial problems?
It is not unusual for factoring prospects to have less than ideal circumstances. Many try to hide this fact from their application. Sometimes they omit details or even critical documents. In other cases, they just enter completely inaccurate information. This can be a serious mistake that will almost always lead to higher factoring rates – or worse – having your factoring application declined. Factoring companies are trained to look for problems and will easily catch any missing information. Additionally, they also do public records searches, which are very helpful in determining if any critical facts have been omitted or are inaccurate.
This opens the final question – what do you do if your situation is less than perfect? Remember that many companies that look for factoring do so because they have growth or cash flow problems. Finance companies are used to working with companies that have less-than-perfect situations. As long as your situation is workable, there is a very good chance that the factoring company will be willing to help you. The best strategy in these situations tends to be a combination of full disclosure and good planning. You should provide your financing company with a full and honest picture of your situation early on, along with the plan of how you will turn things around. This last point is critical – you must have a plan to improve things. Many factoring companies will react positively to this and will be willing to help you. And if they’re not willing to help you, it’s best that you find about it early on in the process.