The factoring financing industry is pretty competitive. Because of this, it’s not unusual for prospects to shop around to see if they can get a better deal somewhere else. However, changing factoring companies can be tricky and many times you will be better off staying where you are. If done incorrectly, changing companies can disrupt your business and can interfere with your customer relationships.
This short article will go over some of the common reasons that prospects use when they want to change providers. We’ll also give you our perspective on them, so that you can have the factoring company point of view.
1. Credit Issues:
Since clients that use factoring services usually have cash flow problems, it’s no surprise that they look for new options if their current provider is not willing to factor a particular invoice – or customer. Don’t be too quick to jump ship though. Most providers want to factor as many invoices as possible because that is how they make money. So not allowing particular invoices/customers is not to their advantage – unless – they are not credit worthy enough and it’s too risky. And if the issue is credit, as it often is, going to another provider won’t help much. While factoring financing companies have their own underwriting methods, most get their credit data from similar sources. And most will interpret a negative corporate credit report the same way. Having said that, some providers are more willing to take risk than others, so a couple calls won’t hurt. Just don’t get your hopes up.
The second most common reason for wanting to change is pricing. Usually, the prospect complains that their current provider is charging them too much. Unless their charges are exorbitant or hurting your business, you should consider staying with your exiting provider – assuming you have a good relationship with them. Moving to another provider may yield a slightly better price (it is a competitive industry) but you have to weight that against the risk of moving to a new company.
It’s also common for prospects to approach a factoring company hoping to get better pricing, and then use that proposal to negotiate lower prices with their current provider. Industry lore says that this latter prospects almost never change providers.
3. Service problems:
If you have service problems with your current factoring provider you should definitely try to work them out with them – or consider moving to another factoring company. This is especially true if these problems are affecting your customer relationships, or if they are hurting your business. This is one of the few cases where the benefits of changing providers may – if the situation is bad – outweigh the risks. Discuss it with an adviser before making the move though.
Disclaimer: This article is provided for information purposes only and does not provide legal or financial advice. Consult a professional if you need advice.