Invoice factoring is a service that converts outstanding credit (in the form of your accounts receivables due in 90 days) into cash at hand. For small businesses, this service offers a lifeline to help you get out of sticky cash flow situations. The predicted growth of the factoring market by 13.28% annually until 2022 is a testament to the service’s vitality for small companies. If you’re in the market for a small business invoice factoring partner, here are some things to help you choose.
1. Their Track Record
A small business invoice factoring company is a critical partner in your operations. It goes without saying that if you will depend on such a partner, it needs to be a firm that has a proven record of excellence. When you embark your search for a firm offering business factoring services, you need to measure the depth of their experience in the areas that your small business operates.
The more time a business invoice factoring company has spent in your sector, the more creative they are at putting together complex financial deals for you. Additionally, the depth of the relationships they build is directly proportional to the time they have spent operating in your sphere. These relationships become essential in helping facilitate suitable factoring solutions for your small business.
A fitting small business invoice factoring provider also needs to have a strong balance sheet. That will give you a measure of assurance that they have the staying power to serve you consistently. A factoring partner with a weak balance sheet will get swept away by unforeseen shocks, which can adversely affect your firm.
2. The Fees They Charge
Small business invoice factoring companies structure their fees in line with their strategy. You need to be aware of not just how much they will charge you but how they plan to apply that charge to determine if you can partner with them. Seek to identify every fee you will have to pay and what triggers each payment for you to make a prudent decision.
Inquire as to whether the potential advance business capital factoring provider will require you to commit to a monthly minimum fee. With his clause, the factoring partner will require you to deliver a specified amount of invoices for factoring every month. Failure to meet this stipulation will attract an additional charge.
Another essential issue you must explore with any firm offering invoice factoring services is the due diligence fees. Every time a factoring provider does background checks on your client, they will charge the cost to you. Before signing the contract, know how much this charge will be to determine the cost of finance involved correctly.
When the time comes for you to part ways with your factoring partner, there can be a cost attached to it. The best time to determine this is before you sign the contract. Don’t forget to look into the possibility of monthly maintenance fees as well since they will impact the net revenue you ultimately receive.
3. The Advance Rate
You can’t make any decision on partnering with a small business factoring company without carefully analyzing the advance rate. A recommended rate here should be in the 705-90% zone. Thus, if your invoice is worth $10,000, for example, any factoring company whose rate falls in this zone will give you between $700 and $900.
Along with the advance rate is the speed at which you get the funds. The longer a factoring company takes to remit the funds to your account, the longer it will take you to serve your customers. Pay attention to the terms and conditions that determine the period it takes to release the funds to you to determine if a partnership is worth it.
Pick the Right Small Business Invoice Factoring Partner
Having immediate cash instead of being stuck with invoices for 90 days can be critical for your small business. Factoring can keep your firm going due to available cash flow, which ultimately grows your revenue. Pick the right factoring partner to avoid slowing down your small business and losing traction.