It is true that invoice financing is a great way of ensuring the daily operations of a business are ongoing but working with factor companies can sometimes be hard. Most of these companies offer long-term including opaque terms and have hidden penalties as well as monthly that you should be aware of.
Transparency is a very important consideration when it comes to picking the best factoring company. Usually, these companies charge different rates so it is essential to know all-inclusive fees or charges required by a particular company. A number of these companies say that they offer low factoring rates, you shouldn’t be lured by this because you may realize later that there are other hidden charges. Plus, there are hidden penalties you should watch out for. It should be your responsibility to identify the causes of these penalties and how to effectively avoid them.
There are many factoring companies that work with their clients on long-term basis. Working with such companies is a great idea but you need to be careful with such companies so that they don’t trap you. Remember that factoring business like any other type of a business aims to make profits. If you are not after long-term contracts you shouldn’t sign up for them. Usually, there are exorbitant cancellation fees that may be required if you realize later that you are not comfortable with the contract. It is important to note that long-term contracts comprise of minimums. You need to be watching especially if you are only interested in factoring certain invoices because you may end up paying what you are not supposed to pay.
Majority of the factor companies work with their clients on notification basis. It means they will be alerting your clients when your invoices are paid. In addition, they will want your client to send the payment on their accounts instead of yours. This can be a major drawback especially if you want be in full control of your clients or customers. Fortunately, there are many of these companies that provide non-notification factoring to business owners who value discretion so much. A factoring company is able to provide an advance of 70-95% of the total invoice but this heavily depends on your clients’ payment as well as credit histories. A good example is when your client is owing you $1000, the factory will be pay an advance of about $700-$900.
There are many factoring companies that work only offline. These companies usually offer long-term contracts and require monthly minimums. They also have hidden fees for example invoice submission fees, applications fees and field examination fees. ACH fees including background check fees are also common hidden fees you need to watch out for. Some of these companies also will ask you UCC filling fees, attorney’s fees and wire fees. For you to get advance from them, you will have to send your clients contacts, necessary documents, bills of lading as well as invoices. The good thing about working with online companies is that they offer mobile apps or online dashboards that you can use to send your invoices.