Has your business ever needed a quick boost to its flow of cash? If your answer is “Yes”, then chances are that you have considered invoice factoring as a funding option. A kind of alternative financing, factoring is when a business sells its invoices to a third-party company, which is called a factor. What happens in this process is – the factor gives you money on the basis of those invoices and then collects the payment from the customers. Generally, as a business, you get the money within a day. On our FRENNS platform, you get the money just within an hour after you have received the approval of the invoice to be financed no matter of where in Europe you are.
You can find a number of factoring companies in the market. While some offer excellent services, but cost a lot more, others lag in areas such as technology, customer service and record-keeping. This makes it extremely difficult for you to choose the factoring company that is the best. To help you with the selection, we are here with some questions that you should ask the factoring company:
What is the structure of your fee?
This can vary depending on the factoring company involved and the industry you are in. There are some factoring companies that charge only a flat factoring fee. In most cases, this is the percentage of the total value of the invoice. There are other factors who charge additional fees for things such as software, money transfers and other costs related to your business. It can even be a receiving fee which is almost more than the factoring fee itself. With some factoring companies you need to employ a person to just keep track of all the work you need to do.
Please watch out. It is trickier than what you think it is.
Before you select a factor, make sure that they are transparent with you about their fees. At FRENNS, there is no hidden or additional fee. You will see it when you upload the invoice for financing.
How long have you been in the financial/factoring industry?
There are a number of factoring companies today with limited industry experience. In any industry, expertise and professional skill develop over time. So before you transact with a factoring firm, take your time and verify their track record and history in providing financial services. Look for established platforms such as FRENNS.
Do you have a good understanding of my industry?
Whatever industry you are in, partnering with a factoring company that has an in-depth understanding of how your business works can be of great help. Look for a company that has experienced people who know the challenges and the business model of your industry.
Do I have to factor all my invoices?
You may have customers who pay on time and there may be others who don’t. Because of this, you may not want to factor all your invoices. Look for a factoring firm that is flexible and enables you to factor only the invoices of those customers who do not pay on time. At our FRENNS platform, we allow you to factor only the invoices that you want.
Do you offer both non-recourse and recourse factoring?
In recourse factoring, you are the one who is held responsible in case your customers cannot pay the factor. On the contrary, for the collection of the invoice, the factoring company assumes more of the credit risk in case of non-recourse factoring. Choose a factoring company that offers the both.
FRENNS use non-recourse and your invoice is insured so you will not be liable to pay it back if your customer’s company defaults.
In order to have a steady cash flow of money, it is important that you partner with a good factoring platform such as FRENNS. This way, you can get flexible and fast funding when your business needs it the most.
FRENNS does factoring to support growth and we do not work with bad companies. We have done the growth journey ourselves and have fought the battles you do. So we know what you are going through.
About the Author: Per Frennbro is the CEO of FRENNS, which offers high speed, low cost invoice financing for small businesses. As a serial entrepreneur, Per focuses on helping both small and medium sized businesses take control of their cash flow. Visit https://www.frenns.com and see how you can turn your invoices into working capital to help your business prosper.