Finding The Right Invoice Factor For Your Small Business

Choosing a business factor is not something that can be done quickly or without careful thought. Because factoring involves your present and future cash flow, whom you choose to work with will affect your business for many years. And with new business factors sprouting on the Internet on a daily basis, even beginning the process of locating the right factor can be daunting. Fortunately, there are some guidelines that you can follow to make choosing a factor easier.

The thing to keep in mind is that when evaluating your company, a factor does not think like a bank. A factor doesnt look at collateral, credit rating or cash worth, so you cant use the same considerations when searching for a factor that you would when trying to find a lending source. So, how do you go about finding the right factor for your business?

1. Consider how much business you plan to offer your factor. Each factoring company typically has a range of invoice amounts they will purchase on a monthly basis. While this may be anywhere from $10,000 to $1 million per month, its comfort zone will likely involve a smaller range. Ask a potential factor what the typical size of their clients is, and youll have an idea of how well youll fit in.

2. Think about how much responsibility you want to have for the debts of your customers. There are three types of factoring services: recourse, non-recourse, and mixed recourse. A factor that works on a recourse basis reserves the right to return invoices to you from customers who dont pay. This is the cheapest kind of factoring, but for a little more, a non-recourse factor will take on that bad debt. A mixed recourse factor offers a little of both worlds.

3. Decide whether you want to have a contract. Some factors will require that you sign a contract agreeing to provide them with business for a year or more. Their rates are often lower than other factoring companies are, but you can be penalized for not providing them enough business or moving to another factor.

4. Think about how involved you want your factor to be. Some factors are user-friendly, while others treat their customers more like parts on an assembly line. Discuss with a potential factor how much contact they will have with you on a weekly basis.
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Just as in any other field, if youre not sure of what to do it is wise to consider going to a consultant. A factoring broker/consultant will help you decide whether factoring is the right thing for you to do for your business. He or she can also help you minimize the time that it usually takes in finding a factor.