Factoring companies work to finance many different types of businesses by having funding arrangements or a method whereby a business owner factors its receivable accounts (mostly invoices) at a discount to their face value in order to raise capital for the business.

In its most simplified form, a commercial organisation will sell invoices that are due to be paid in the future to funders who in turn pay money for the invoice at the point (or soon after) being raised. This method of lending is most commonly referred to as invoice factoring or invoice financing.

Factoring companies unlock the value of invoices. They also free a business from the struggle of chasing down customers for payments. A company will trade their outstanding invoices for capital and leave the collection of payment in relation to the invoice, to the funder.

Finding a Factoring Company

Any decision to get any form of financing (which includes factoring) for your business requires a careful and well thought out plan or strategy to ensure you get the most appropriate factoring service for your business. A company would attempt to find a company that meets their exact financing needs. The funders may be found by speaking to other similar companies, intermediaries, internet searches or by various other methods. It is always best to find someone with experience in your industry.

There are a number of industry specific factoring companies and listed below are some of the steps one may take when finding a factoring company.

  • Find and survey each company: The easiest way to search for factoring companies is on the online web, the internet will provide you with enough details of companies or you can ask your lawyer, accountant or friends with experience in factoring of who they may be able to recommend. After conducting a proper search, one may need to carry out a proper survey and review each company; depending on the level of factoring and their requirements. One should find out their rates offered and more importantly the industries the financier are specialized in. A company should not always make their decision solely on who offers the cheapest rates; however that may be a main focus. A company may make industry experience the number one priority when finding a factoring company but the focus and criteria that a company adds weight to, will depend on their specific needs.
  • Applications: After one has decided how they will look at the market and what their focus is, they will move onto the next stage, which is submitting applications to their preferred factoring company or companies, as the case may be. There is little value in applying to too many companies as one or two will be enough. One will just fill out the application forms and submit all the requested information. The company will then receive factoring proposals after submitting their requests, if their security, company structure and request is appropriate.
  • Review Proposals and Making Your Decision: The last step is to review the factoring proposals and make the final decision on which factoring company the business should use. A company will need to carefully review the proposals using necessary criteria, like the advance, rate, reserve requirements, contract length, application and commitment fees, ancillary fees, legal terms, industry experience and other items specific to the company. A company will need to consider how each funder ranks with respect to those points listed above.

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Find out more on invoice finance, factoring and discounting in our TFG Invoice Finance Guide.