What you need to know before selecting an invoice factoring company

Think and ask questions, before you decide.

The first question all potential customers ask is… What’s your rate/factoring fee?

The factoring fee is important but “what’s the cost” is what you really want to know.  Many factoring companies (in order to sound more competitive) offer you teaser rates and sure, the teaser rates sound great but if you apply common sense to the teaser rate, you will immediately see the problem.  How can a factoring company offer you a rate where it cost them more money than what they are offering you?  

What are you missing or is this possible to get such a low rate?

The truth is, no, it’s not possible to get a rate that low unless there were going to be many other hidden fees.  Many factoring companies try to sell you on the rate, not the cost.  Many factoring companies not charge you at factoring rate/fee that is lower than many other companies, but they simple jab you to death in other fees, such as an APR.  Many factoring company’s double dip.  They charge you a factoring fee but do not tell you that they will also be charging you an APR (like a car loan).  Say you factor 100K in invoices where a factoring company charges you 1.5% but now, they also add an APR fee of whatever the prime rate is, plus an additional ½ percent.  If you are offering net terms of 60 days to your customers, there real factoring fee to you would be closer to 5% but they advertise a factoring fee of only 1.5%

What questions should you ask any Invoice factoring company?

  1. Do you charge a factoring fee and an APR on the money that is outstanding? Remember, they will do everything in their power to dodge this question but press it.  If a factoring company is charging you both a factoring fee and an APR; RUN FORREST RUN!
  2. Ask if there are any monthly fees that they will be charging you. Many factoring companies charge you an invoice review fee.  You are selling invoices to a factoring company; the factoring companies’ job is to review all invoices.  It’s part of the factoring fee. 
  3. Many factoring companies will charge you a month fee to use their online web portal, they won’t tell you about this util you try to access your reports.
  4. If you contact a factoring company looking for a quote and them request that you sign something for providing the quote – READ THE FINE PRINT. They tell you for providing you with a quote that they will file a financing statement.  What they refer to a financing statement is an all-asset lien/UCC Filing on your company.  Once they place an all-asset lien on your company, they will charge you thousands of dollars to terminate their lien.  If you are ever asked to sign a proposal – RUN FORREST RUN!
  5. Another very important question to ask about is your account rep. You want to know that the account rep that gets assigned to your account, is a seasoned professional.  Your account rep is an extension of your arm.  Your rep will be contacting your customers.  You want a dedicated seasoned professional handling your account and speaking to your customers.