Guide On Choosing The Best Factoring Company

Written by Robert

Do you want to hire a factoring company to provide service to your business but is confused because there’s a lot of choices out there? We got you covered. In this article, we will guide you on how to choose the best factoring companies for your business. Without further ado, let’s start:

1. Consider the specialization of the factoring companies

Although there are generic factoring companies that can serve general businesses, some industries need specialized factoring. If your business is in the medical, construction, transportation, and other specialized industries, you should choose a factoring company that specializes in the field of your business. This will guarantee that you get the best service for your business.

2. Funding options

There are two types of funding for factoring companies, recourse funding or non recourse funding.

With recourse funding, you as a business owner will shoulder the expenses of customers that didn’t pay the invoices factored by the factoring company. Meanwhile, a non recourse funding means that you’ll not have to assume the losses of non paying customers.

With these in mind, it is safe to say that a non recourse funding is a safer option for businesses. However, it presents more risk to factoring companies, which means that you’ll be hard pressed to find a factoring company that offers non recourse funding. Even if you do find one, non recourse funding generally comes with higher rates because of the added risk to the factoring company.

3. Consider the terms and conditions and payment rates

Factoring companies are unique, and each of them comes with its own terms and rates of payment. Factoring companies that boast that they are the cheapest provider in terms of payment might have hidden charges to compensate. Fees like lawyer’s fees, application fees, processing fees, ACH fees, invoice filing fees, and a range of other extra payments can easily make up for the “cheap” cost that they boast about.

For this reason, you should select a factoring company that is transparent and honest when it comes to calculating their rates. The standard factoring fee imposed by most companies is 1 – 5 percent of the total value of the invoices that they processed. Companies that charge fees of 1 percent or lower generally make it up with hidden charges as stated below.

4. Consider the flexibility of the factoring company

When deciding on a factoring company to partner with, ensure that you pick a firm that provides you with much needed flexibility.  A number of companies demand long-term agreements, pre-payment fines as well as a minimum amount of monthly transactions. In addition, pick a factoring company that permits you to decide on the specific invoices that you want them to factor. Make sure that you still have flexibility on factoring invoices by avoiding companies that force you to factor every single one of your invoices or every invoice from a specific vendor or customer. This type of agreement works against your favor.

About the author


Robert loves the sea and dreams of getting a home with a beachfront. He used to be a Data Scientist in a multinational company but left his job to follow his passion for writing.