How to Find the Best Factoring Company for Your Business

Updated July 14th, 2022

Business owners and managers may find it challenging to compare factoring companies with all the fine print details involved in the agreements.

Whether or not you end up requesting a proposal from us, we would like to give you a few valuable tips for your decision process. This guide has been specially designed to help people like you find the invoice factoring company and agreement that perfectly fits your cash flow needs.

Learn to Compare Invoice Factoring Companies

Here are the steps you should follow when evaluating funding options:

1. Learn What a Factoring Company Is And The Service It Provides
   • How do factoring companies work?
   • Types of businesses that they serve
2. Lists of The Best Factoring Companies
   • Learn why you cannot trust them
3. How to Choose the Best Invoice Factoring Company for Your Business
   • What affects the deal you can get?
   • What do you get for your money?
4. Evaluate an Invoice Factoring Provider’s Reputation
   • What should you look for in a factoring company?
5. Evaluate the Service Quality
   • Pre-sale and approval stages: how to avoid wasting time
   • Who takes care of your everyday account needs?

How do business invoice factoring companies work?

Factoring companies buy outstanding receivables issued to commercial companies. The factoring process is straightforward:

• Your business sells to other companies, provides the service, or delivers a product and then issues an invoice giving the customer 30 to 90 days to pay it.
• Then, you submit invoices for factoring and get a cash advance, usually between 75 and 90% of the unpaid invoice's face value (in transportation up to 97%).
• The factor waits until the invoice is paid, discounts the advance and fees, and wires the balance to your bank account.
• The process repeats for as long as your company needs business capital.

For complete guides about the process, factor fees, factoring rates, and advances, please go to the articles below:

• How does the process work?
• Pricing: Factoring fees and factor rate.
• What percentage of the invoice value you’ll get up front?

What Industries Do Factoring Companies Serve?

They work with most business-to-business (B2B) industries. They don’t serve companies that only sell to consumers. The range of industries served is extensive; the most common are the following:

• Trucking industry & freight industry: transportation, trucking companies, and freight brokers
• Temporary staffing
• Manufacturing, logistics, wholesale, and distributors
• Cleaning, pest control, and janitorial
• Construction and infrastructure contractors
• Security services
• Farmers
• Cell tower contractors
• Oilfield services
• Aerospace and aviation
• Government contractors
• Food producers
• Marketing and advertising companies
• And many other commercial services

Some of them specialize in only a few niches. It’s pretty common to find companies that only provide freight factoring services and fuel card discounts or staffing factoring.

Those that serve consulting services or healthcare providers are rare.

The 7 Best Factoring Companies ( this year)

If you perform a web search, you’ll find several websites offering lists of the best invoice factoring companies, including titles similar to this section's teaser.

Typically these lists rank them based on categories like the following:

• Best for trucking and freight companies
• Best for small businesses
• Best for speedy funding
• Best non-recourse
• Best for low rates
• Best for receivable management
• Best for flexibility
• Best for short-term contracts
• Best for approval rates
• Best for financial options
• Etc.

People mistakenly tend to trust those lists and endorsements without a further analysis which is a big mistake.

Why? You need to look at the small print disclaimer on these sites; the website owner gets compensated for including those companies as the best.

The truth is that most of these blogs that include best lists, online reviews, and recommendations are not reliable. The reason is simple; there’s no proven research to support the inclusion. Instead, these companies base their criteria on financial benefits.

So, if you cannot trust these lists, how do you know which is the best for you?

Here is a primer on what you should look for in a provider.

How to Choose the Right Factoring Company for Your Business

There are three essential aspects that you need to consider:

• Factoring costs, discount rates, and other service details
• The company's reputation and history
• The quality of the services provided

Let’s go deep into each one of these valuable points.

Factoring Agreements Specifications

In a factoring transaction, the factor buys invoices that represent a debt owed by a third party (your debtor), not by your company. For the factor, this involves taking the chance that your debtors won’t pay, in addition to the possibility that you won’t be able or won’t be required to reimburse the advance if this happens.

The underwriter studies these possibilities when defining your discount and advance rate.

That’s why there is no one-size-fits-all package when it comes to factoring contracts. An underwriter needs to analyze your client portfolio before approving your application and giving you a custom proposal.

Comparing Factoring Costs

Why Won’t You Find Big Differences in Cost Among Agreements?

Unless you are a vast organization with a robust portfolio of creditworthy customers, you’ll get a similar proposal from most factors.

Whether the factor charges just one or multiple fees, you’ll find a very similar overall cost once you compare quotes and do the math. The sector has recently standardized, and most experienced managers will offer you an industry-standard deal after assessing your company’s risk.

Here you can read more details about costs.

So, what are the key criteria that affect the deal you’ll be offered?

• Your customers’ creditworthiness

The better your clients’ credit scores and credit history are, the lower the charges you’ll pay.

• Your customer concentration rate

You’ll likely have to pay more if your portfolio comprises only a few clients (high concentration).

• Types of factoring agreements: Recourse or non-recourse

Full non-recourse factoring agreements, in which the factor has no recourse in the event of delinquency, are much more expensive than recourse factoring deals. In a non-recourse factoring contract, you may also need business credit insurance, which adds extra costs to the transaction.

• Non-notification deals

You’ll pay more if the factor waives its right to notify your debtors that an invoice was sold to the factoring company.

• No (or minimum) verification or monitoring

If the factor does not verify the debt or monitor the collection process, you’ll be required to pay much more in factoring fees.

• Your average collection period

The longer the average time you take to collect from your debtors, the more you’ll pay.

Comparing Value

When comparing agreements, you also need to analyze what you’ll get for your money. Some companies only provide business funding. Others, typically called “full service,” include valuable add-ons such as free debtor credit checks and support managing receivables and collecting outstanding invoice amounts. These complimentary add-ons can save you a significant amount of money and allow you to concentrate on your strengths instead of worrying about monitoring payments.

Evaluating Reputation & Trustworthiness

References from long-term clients

If you want to know how reliable a factoring company is, you need to ask for references from people with a considerable relationship history. They will be able to tell you how helpful the managers are when cash flow emergencies arise.

Customer retention rate

Trustworthy factors have high retention rates, while unreliable ones do not. Ask managers for their average retention rate. How long a client stays with a company says it all.

Experience & Time in Business

Look for organizations that are at least 10 to 15 years old. A firm that has been operating for that long very likely has a lot of experience solving working capital problems in a wide variety of cases. It also has a very reliable source of business capital, which assures you they’ll always have funds available to advance. Also, look for funders that have been steadily growing throughout the years. Commercial success is an excellent measurement of high customer satisfaction levels.

How to Compare the Quality of the Invoice Factoring Services Provided

Getting funding at a reasonable cost is essential, but it’s crucial to have the cash when you need it. Your employees cannot wait for their salaries to be deposited, your vendors need to get paid, and your company needs cash flow to operate efficiently. It’s crucial to have the right people taking care of your business needs when emergencies arise.

When choosing a provider, you need to consider who will care for your needs in each stage of your relationship with the factor.

Pre-sale and approval stage

Let’s imagine you need immediate working capital and are looking for a funder. During your first contact, you can either:

• Talk to a broker

A broker is just an intermediary who gets your information and then speaks with a funder to confirm your approval for invoice factoring. A lot of waiting when getting funds is urgent.

• Create an online account and wait to see what happens

Some online factors can get you started without human interaction. To sign up for an account, you must use a web portal and connect your accounting software to their web application. A computer algorithm pulls all your financial information from your software and analyzes it. The danger is that if you don’t get accepted as a client, you’ll have revealed all your financial data to a third party for nothing.

• Talk to a decision-maker

There are funders, like Gateway, where you’ll get direct access to a decision-maker from the start. A manager or director will listen to your situation and tell you right away if you fulfill the requirements for factoring. If you do so, then you can get a proposal in a couple of hours. You’ll get personalized and fast attention to your business cash flow needs right away.

The type of relationship you’ll get is your choice from the very beginning. What kind of funder do you prefer?

Ongoing relationship

You’ll also need to think about your future everyday relationship with your factor during your evaluation process. In a working relationship, you’ll need to ask questions about factored receivables and invoice payments, get answers about your contract, request special funding, etc.

What you’ll ideally want:

• Customer service and dedicated account representatives that are:

1. Experienced
2. Specialized in your niche market
3. Reachable by phone when needed

• Direct access to directors when important issues arise

We hope you can benefit from the information contained in this guide and use it to find the best factoring company and financing option for your needs. If you decide to contact us, get a factoring quote, or apply for factoring, our managing director will be happy to work with you to ensure that you get a reliable source of business capital for your operations.

If you have cash flow issues due to slow-paying customers, we would love to partner with you:

• Request a quote today, and get a proposal in 30 minutes.
• We’ll put you in touch with our managing director from the first contact.
• Same-day funding.
• Low monthly sales minimums or maximum amounts.
• Competitive fees.
• Short or long-term contracts.
• Minimum qualification requirements. No application fee.
• Flexible factoring services.
• Fuel card programs.
• Proceeds are directly deposited into your bank account on the same day through money transfers.
• We have accounts managers experienced in a wide range of sectors such as construction, freight, trucking, staffing, payroll financing, government, startups, etc.
• Maximum factoring lines and credit limits up to 10 million.

Please check this page for additional information about Gateway Commercial Finance and our transparent and highly confidential programs.

Good luck with your search!

Author Marc J Marin