Choosing a Factor

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Choosing a Factor

How to Pick a Factoring Partner

It is important to look for a factor with a concentration in your industry so that the lender can understand and respond to your particular needs. Each factor has its own specialty, whether it is financing technology companies, transportation companies, or manufacturing companies. Experience should always be considered over price.

Here are some other tips:

Look for a program that doesn’t require a long-term contract. If the program isn’t working, you need to be able to quickly move on to something else. Make sure the program can be terminated at your request, without an automatic renewal clause. And try to avoid getting locked into a program that assesses minimum interest costs.

Look for hidden fees. Are there fees for legal documents? If so, how much are they? Are there audit fees? Are there early termination fees? How are the fees calculated? How often are reserves remitted?

Get references:

Find a program that doesn’t require that you finance all of your receivables. You should be able to choose the receivables to finance.

Lastly, remember that it is best to view factoring as a short-term cash management tool. It is designed to get a company from point A to point B, and when structured properly, will perform better than many other financing tools.