Most factoring prospects go through the process of selecting a factoring company in a haphazard way. They usually search the Internet and start calling companies to get general information and collect applications. Once you have spoken to those companies, they will usually try to apply with as many factoring companies as they can, hoping that they will find the proposal with best terms. This approach has two major problems. First, it takes a lot of work. Second, and perhaps more importantly, it doesn’t always produce the best result.
The best approach, in our view, is to follow an organized process that allows you to identify the top two (or perhaps three) factoring companies that are best suited for your company. Then, you should focus your negotiation efforts on those top invoice factoring companies.
Identifying the best candidates
This begs the question, how do you identify the best candidates? While there is no surefire way of doing this, your best bet is to do ask them the following:
- What industries do you specialize in? This is actually a very important question. While many factoring companies define themselves as generalists, the fact is that they usually have areas of expertise. Some specialize in transportation, others in staffing or in oilfield services, and so on. You should always work with a company that has experience in your field.
- What deals sized to you specialize in? What is your ideal deal size? This is another area that is important. While many factoring companies will give wide ranges for the deal sizes that they can handle, say between $50K and $2M, the fact remains that the bulk of their customers will usually fall in a very narrow range. It’s usually not a good idea to be the factoring company’s smallest – or biggest – customer. Your best bet is to fall somewhere within their sweet spot.
- How long have you been in business? This question is self-explanatory, but basically you want to find out if the factoring company has been in business long enough to make you feel comfortable.
- If we decide to move forward with you, could you provide us with some references? Once you select a factoring company, you should ask them to provide you with a list of three references that are in your industry who have been with the company for a year or more. This is very important because it will allow you to identify whether the factoring company has experience in your industry are not. Additionally, it will also provide insight as to how they treat their customers.
Choosing the right company
When interviewing factoring companies, most prospects just focus on asking about rates and terms. While this is important information about the financing plan, you need to find more information about your factoring company to make sure that they are a good match for you. Asking these questions and doing your due diligence will allow to chose the top two or three companies that will meet your objectives. You can then spend your efforts in submitting a well crafted application, which will increase you chances of getting very competitive rates.
Disclaimer: This article is for information purposes only and is not intended as legal or financial advice. Selecting a factoring company is a serious matter. You should get competent advice if you need it.