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Invoice Factoring: Ask Detailed Questions & Choose the Best Invoice Company

Aug 17, 2007
Factoring companies: learn the top seven financial questions to ask and then choose the best one to grow your business the fastest.

A factoring company advances funds to your business based upon the dollar amount of your company's outstanding account receivables. With a quality factoring firm, you no longer have to wait to receive money owed to you by clients. Each accounts receivable factoring firm may charge different fees, though. Here are the high level questions to ask each company to find the best situation for your firm:

Ask the following questions of your prospective factoring companies:

1. Ask each invoice factoring company how they determine fees to spot the best deal.

The fees that you would pay to accounts receivable factoring companies are based on the financial strength and credit worthiness of your customers. Specifics include:

* How often you bill your customers,
* how long your customers have been in business and
* how quickly your customers pay your invoices.

2. Ask invoice factoring companies for a favorable advance rate and quickly increase your working capital.

When working with a factoring firm, you will submit outstanding invoices to them. They will then provide your business with cash based upon your advance rate. Customary advance rates range from 75% to 90%, which means you would receive between $750 and $900 for each $1,000 of outstanding invoices submitted.

Learn more about how to choose the right factoring company and solve your cash flow management problems.

Now let's get more detailed; here are a few more to ask to make sure you find the best factoring partner to grow your business.

Ask the following questions of your prospective factoring companies:

3. If an invoice factoring company offers you a flat fee rate, ask about the implications of a flat fee rates and make the right choice for your business.

While flat fees may seem less complicated, the end cost can be substantially higher. With a flat-rate fee, the cost is the same whether the receivable is out for 10 or 60 days so, unless most receivables are out 45-60 days, the overall cost makes this type of rate more expensive.

4. Ask an invoice factoring company these questions about contract terms to avoid costly termination fees:

* Is there a contract term,
* how long would my contract term last,
* is there an early termination fee,
* is my contract automatically renewed if I don't cancel in writing and
* if so, how much advance notice to cancel do you require?

5. Not all receivables factoring companies are alike: ask potential partners if they work with all clients.

Some receivables factoring companies, for example, will not fund companies with a high concentration, i.e., if their business is dependent upon one or two clients. Other companies do consider clients with concentration and they usually examine risk levels to determine a rate.

Factoring companies: Now let's get to the nuts and bolts with the final two questions to ask to get the best invoice factoring contract for your company.

Ask the following questions of your prospective factoring companies:

6. Make a savvy financial decision: ask about specific fees charged by receivables factoring companies.

Ask prospective factoring firms about the cost of the:

* Application fee,
* Due diligence fees,
* Credit reporting fees,
* Background or lien search fees,
* Factoring company lock box fees,
* Minimum monthly volume fees,
* Charges to add a new receivables factoring client,
* Early termination fees from receivables factoring contract,
* Upfront advance fee and then an interest fee,
* Fee for same day advances,
* Monitoring fees,
* Automated clearing house (ACH) fees and
* Wiring fees.

Some invoice factoring firms have a flat rate fee that includes all services, except for the monthly Internet access report fee.

7. Ask how factoring companies calculate interest charges and choose the most favorable.

Some factoring firms begin charging interest as soon as an invoice is issued. Under this system, you could end up paying several more days worth of interest than if your factoring company began charging interest on the date you receive funds. Also ask factoring companies if you can select what day of the week to receive your funds and pick what's best for your company.

Select a quality invoice factoring company now: get immediate funding to grow your business.

Now that you have the tools and knowledge to evaluate factoring companies, you can decide which factoring company will grow your business the fastest. Don't miss out on lucrative business opportunities because of poor cash flow any longer! Contact companies and get your factoring loans to get growing now.
About the Author
Gage Price is President of MP Star Financial, an invoice factoring company. Gage worked his way up through the ranks as an invoice factoring salesperson and underwriter and received his MBA from New York University's Stern School of Business. Find out how to grow your business at MPStarFinancial.com.
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