Starting a business today is a popular career choice. As a matter of fact, over 600,000 small businesses open their doors every year.
What those businesses quickly find out is that running your own operation is extremely hard, to say the least.
One of the chief issues that many business owners run into when just starting out are cash-flow problems. Even when you land a customer and invoice them, it can take 90+ days for your invoice to get paid which can put the squeeze on your ability to reinvest in your workflow.
Fortunately, factoring services exist which buy your outstanding invoices off of you for a small fee. Before you get excited and hire the first factoring provider you see, know that now all services are created equal.
Here are 7 must-have qualities that your factoring provider should come with.
1. Fees Should Be Low
As we mentioned in our intro, factoring services will pay you for any outstanding invoices that you have. That allows you to not have to sit and wait if your clients require you to include net-30, 60, or even 90-day conditions on your invoices.
Factoring services won’t buy your invoices for free though. They’ll want to purchase them at a nominal discount which is usually represented as a percentage (1 to 5% for example).
Your goal when finding a factoring company is to partner with one that has the lowest possible fees.
A factoring company that charges a 5% factoring fee will only pay you $95.00 for your $100.00 invoice. A factoring company that charges 1% will pay you $99.00.
2. They Should Understand Your Niche
It can be challenging to deal with a factoring company that doesn’t understand how your industry works. This is mostly due to snags that could occur as your factoring company tries to collect on your invoice.
If a factoring company isn’t familiar with how the cleaning industry works, for example, and are consequently having trouble communicating with your client as they try to collect on the invoice they bought off of you, trouble could come your way.
First off, your client could get upset that your factoring service is causing them headaches which might lead to your firing. Second, your factoring service might get frustrated with you that they’re not able to easily collect on your invoices which might cause them to drop you.
To avoid all of that, ask your factoring service if they’ve worked with clients in your industry in the past. If they haven’t, proceed with caution.
3. Penalties Should Be Transparent
Are there any reasons why your factoring service might impose an additional fee on you? If there are, you need to know about them.
A common reason why fees might come your way is if your client is late on payments.
Make sure that you know what fees look like with your factoring company so that you can make sure they’re not going to nickel and dime you.
4. Workflows Need to Be Simple
In a perfect world, you’d just send a copy of every invoice that you send to a client straight to your factoring company. Once they get it, the next morning they’d wire money to your account.
Unfortunately, though, not every factoring company is that perfect. Some require you to fill out lengthy documents for every invoice that you send their way.
Those convoluted processes are best avoided.
Aim for factoring services that make your life simple and you’ll enjoy a much better business relationship.
5. Outstanding Customer Service
Every vendor that your small business deals with should have superb customer service. Your factoring services (https://www.tbsfactoring.com/) provider should be no exception.
If a prospective service provider seems standoffish on the phone, move on. If they’re being less than straightforward regarding your questions, move on. If you’re just getting an odd feeling from a service provider, keep looking to see if there’s a better fit out there.
Your factoring service is going to be an integral part of your business’ operations. If you’re not feeling good about the support that they provide, you’re better off weighing other options now than regretting things later.
6. A Track Record of Stability
Businesses come and businesses go. You’re going to want to make sure that your factoring service provider is here to stay.
The best way to do that is to analyze how long they’ve been in business for.
If a factoring service has been operating for 10-years, chances are they’ll be around for at least 10 more. When a factoring service has just opened their doors for the first time, there’s a lot more uncertainty regarding how they’re going to be able to manage their business.
We recommend betting on a service that has a proven, stable track-record to avoid headaches.
7. Great Word of Mouth
When a business keeps its customers happy, their customers will let their community know.
Head over to review aggregating websites like Yelp or Google to see how people have enjoyed working with a factoring service that you’re considering. Lot’s of 5-star reviews mean lots of assurance that you’re going to love working with the place that you’re considering.
Closing Out Our Tips on How To Choose The Best Factoring Services
Depending on the line of business that you’re in, factoring services can mean a tremendous amount to your company’s ability to operate.
If you’re interested in learning more about factoring services or want to dive into other things that you can do to improve your business’ operations, do yourself a favor and check out more of the stellar advice we have for you on Feeds Portal now!