Choosing the right company for Accounts Receivable Factoring
Accounts receivable factoring is a fast and convenient solution for your business’s cash flow needs. There are many companies out there offering factoring services, however, so how do you know which one is right for you?
There are many things to consider when you are choosing your factoring company. Here are four of the most important matters you must consider before you make your choice.
Recourse or non-recourse funding
With invoice factoring, there are basically two kinds of funding agreements: recourse and non-recourse. With recourse funding, your business would have to assume the risk if your customer does not pay the factored invoice. Non-Recourse factoring is when the factoring company takes on that risk. It sells its invoices to a factor and receives a percentage of the cash value from them. The factor will then chase up the invoices and once full payment is received will reimburse the company with the remaining balance of the invoice. Given the higher risk for the factor, they will usually charge a higher fee for non-recourse funding.
Fees and terms
Before you commit to a factoring agreement, it is essential that you study the factor’s rate structure and terms. Companies that claim to be the quickest and cheapest will often make up for their lower rates with additional hidden fees. Go for a company that is open and honest about their rates. You want a company that won’t throw any unexpected costs at you.
Your factoring agreement must work for you. Choose a company that is flexible. This means it will allow you to choose which invoices to factor, and won’t lock you into long-term contracts with monthly minimums and pre-payment penalties.
Although not always an important consideration, there are some industries that require factoring companies with specific expertise. Industries that require factors with specialized knowledge include transport, healthcare and construction.
Kore Capital Corporation provides short-term capital to small businesses. For more information on our line of credit, government contract financing, or accounts receivable factoring solutions, contact us today.