7 Questions To Ask Before You Use Invoice Factoring

writing out a budgetInvoice factoring is one of the best-kept secrets in financing. For a wide variety of businesses, this tool can be used to avoid cash flow problems. Over 70% of business owners have never heard of factoring and the 30% who have, do not know how to use it for their business.

We want to help you understand exactly what you are getting when you decide to factor your invoices. Before you start, here are 7 questions to ask your factoring company to ensure that your business will receive maximum benefits.

1. How Does Factoring Work?

Although you probably know this, your business development representatives, or your point of contact at the factoring company will be able to describe how factoring will work specific to your needs. They will explain that your invoices will be purchased and you will get the cash for them in less than 24 hours. They will work with you to determine what and how to operate this transaction on your end so that none of your business practices are compromised.

2. What Type Of Factoring Is Right For My Business?

When you are ready to factor your invoices, your factoring company will put you in touch with a business development representative. This individual will ask you some questions about your business, what you are looking to get out of factoring, and more to determine the best kind of factoring for your business.

3. Do I Have To Factor All Of My Invoices?

Some factoring companies have restrictions on the amount of invoices that need to be factored. Before you begin factoring, it is important to ask this question. If you are strapped for cash and need to factor multiple invoices, or you are simply having a bad month and just need to factor one, be sure that your factoring company is compliant with what you need.

4. Do You Have Experience in My Industry?

Something that our customers love about us is that we have experience in a wide variety of industries. This allows us to find the best solutions for your specific business. No matter if you are a simple one-location retail store or a full on trucking company, be sure that your business development representative has experience working or operating in your field. This will result in better financial solutions and better business for your business.

5. How Are My Customers Treated?

Your customers will remain your customers, but they will be advised of this change in payment. When you factor your client’s invoice, you must change the payment address to the factoring company’s location. This is similar to how a bookkeeping service would handle your payments. Because they are now the recipient of that client’s invoice, they will collect the payments. Typically, the factoring company will notify the client of the change. It is very important to know that a factoring company is not a collections agency. The factoring company’s goal is to keep your clients happy so that both you and the factoring company retain the client’s business.

6. Will I Be Required To Sign A Contract?

Typically, factoring companies do not enforce term contracts. Most factoring companies have either month to month contracts or short term contracts less than 1 year.  

7. How Do I Qualify For Invoice Factoring?

With our invoice factoring services, we base the majority of our credit decisions off of your customer’s creditworthiness. This helps ensure that we will get paid, and that you never have to worry about defaults due to late payments.

Invoice factoring is a great option if your business is struggling with cash flow. This gives you the opportunity to get the cash from your unpaid invoices fast so that you can allow your business to grow. We hope that you consider these 7 questions before your business factors. This will help determine if this is the right financing solution for you.

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About the Author:

Robert Bernfeld started in the commercial finance industry in 1974. His early years included positions with Aetna Business Credit and Foothill Group. During the next thirty five years. Mr. Bernfeld established both equipment leasing and accounts receivable factoring companies. He partnered in founding Business Facilitators, Inc. in 1999. Mr Bernfeld graduated from the University of California, Riverside in 1974 and received his Juris Doctorate from Loyola University School of Law in 1977.

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