How to Evaluate and Choose the Right Factoring Company
If you answered yes to all 10 questions, congratulations! Your factor gets an A+.
If you answered “no” to two or more, see the consequences you’re suffering below.
- Higher credit limits on key customer accounts:
If you have a key customer that accounts for 30% or more of the money owed to you at any one time, many factors won’t consider you. For example, if your total book of business is $100,000 then a factor with a 30% limit will only consider funding $30,000 with any single debtor. Or, the factor may impose a concentration cap on a single debtor and will not purchase invoices over that cap. Without higher credit limits on key accounts, your cash flow is limited, causing you to miss out on business opportunities. Or, you may have to borrow money from other sources or invest more of your own money to take advantage of those opportunities.
- High enough advance rate:
It’s important to have as high an advance rate as possible to get the most financial leverage as possible from your accounts receivable. When advance rates from a factor are too low, your liquidity is constrained and you may not have enough cash flow to operate or grow. The result: you may lose out on opportunities that require additional cash flow or miss paying operating expenses in a timely manner.
- Timely release of reserve balances:
A key benefit to factoring is to provide a quick boost to your cash flow. Without timely release of your reserve balances, cash flow is strangled, negating the benefit of factoring in the first place. The result: you don’t have the working capital you need to keep operating.
- Same day funding:
Same day funding gets you cash within 24 hours of submitting your invoices. Without it, you may not be able to make payroll on time or meet urgent operating costs such as fuel, truck repairs and insurance. You could lose vendors, employees and customers, and possibly, your business.
- Easy to understand factoring reports:
Without them, you may not get the right data to analyze your financing or you may misinterpret results. For example, you need to know which customers are delinquent, how delinquent they are and by how much. If you can’t quickly find the information you need, you’re wasting time and risking your business.
- Dedicated relationship manager:
Without a consistent, dedicated manager, you won’t get the kind of individualized advice and tailored solutions you deserve. A true long-term partner will understand all the nuances of your business and your particular challenges, so they can more quickly respond when something happens. When you’re in a cash flow bind, you don’t want to have to explain your company all over again to a new contact.
- Respond quickly enough:
Running a business means you’re torn in many directions. You need fast funding answers so you can move forward and make the next decision. You need a factor who understands your funding urgency: pay drivers, buy fuel, make repairs, and meet all those day to day operating expenses. A factor who takes too long holds up progress and could cost you opportunities. Similar to the above, you want a partner who understands the issues quickly and can help you through difficult situations.
- Trucking expertise:
A factor who doesn’t understand the transportation industry can’t provide the kind of business insights that can help you succeed. You want a factor who understands the challenges, situations, opportunities and deadlines you face. That means someone who keeps up with technology and regulatory changes and can help you get the funding you need to comply; who understands invoicing nuances and the difficulty of gathering documents from drivers; and who works with you to find a solution.
- Free load board:
If you’re paying for a load board (or not using one due to cost) you’re missing out on the opportunity to eliminate dead end runs and increase your profitability. A funding partner who offers free load board is one who also looks out for your business needs and increases your revenue.
- Fuel cards and savings at the pump:
You miss out on the advantage of saving up to .15 cents per gallon as well as flexibility in your card management. Why pay more when you could use that money to repair equipment, upgrade technology and so much more.