Many firms offer factor funding options that are designed to help your firm improves its cash flow by selling accounts receivable at a small discount off their face value. These firms usually offer different cost structures that are easy to compare if you are willing to look closely at what a factor funding lender offers to clients.
Here are six helpful suggestions that can help you find a factoring company that offers the best cost structures for your firm.
Compare Your Funding Recourse Periods
Most factor funding companies offer funding periods that generally last between 1 to 90 days. Other factor funding companies that offer funding options to large businesses offer funding periods that can last up to 120 days. These periods measure the amount of time your customers have to pay your factored accounts receivable on time. Comparing these funding periods is worthwhile because it can help you determine the potential value of your accounts receivable to factor funding companies.
Ask for Information About Funding Fees
Most factoring firms charge funding fees that can range between 1 to 5 percent of the value of your accounts receivable. These fees are charged by factoring companies in order to offset some of the risks that are associated with providing factor funding to firms.
Some of the most common funding fees include:
*Commission fees.
*Account maintenance fees.
*Collection fees that are incurred when your customers fail to pay off their accounts on time.
Other common funding fees include application fees and account origination fees.
Many factoring firms charge these fees every 30 days your account is open. As a result, be sure to ask for information about these fees before you submit an application for factor funding. Asking for this information is recommended because it can prevent misunderstandings that make using factor funding difficult for most business owners.
Compare Your Funding Rates
Factoring companies typically pay between 70 to 90 percent of the face value of your accounts receivable. This rate is called a funding rate. It is usually determined using the following criteria:
* Your customers’ creditworthiness and current ability to pay you on time.
* The current terms of your accounts receivable.
* The amount of revenue your firm’s accounts receivable generates each month.
* The current economic condition of your firm’s industry or niche market.
Moreover, many factoring companies also use information about your customers’ payment terms to determine their final funding rate offers.
Fortunately, comparing these rates is easy because most reputable factor funding companies offer detailed information about their funding rates on their websites and in their sales literature.
Compare the Terms of Your Funding Agreement
Factoring companies generally offer funding terms that can last for up to 72 months. These terms describe how long your firm can access funds from a factor funding agreement. Comparing these terms is important because it can take the guesswork out of understanding the long-term cost of using factor funding.
Ask About Any Minimum Funding Requirements
Some factoring companies have minimum funding requirements that require your firm to factor a minimum amount of the value of your firm’s accounts receivable. Some of these companies offer fee discounts if you meet these requirements. Therefore, it is a good idea to ask about any minimum funding requirements that could impact how you receive factor funding.
Learn How to Resolve Accounts Receivable That Remain Unpaid
Some clients wind up with unpaid accounts receivable that are still due after their funding recourse period ends. This can create many unwanted financial problems that can make you think twice about using factor funding for your firm’s financing needs.
An easy way to avoid these problems is to ask your factoring company for details about how they resolve any unpaid accounts receivable that remain after your funding recourse period ends. Learning how to use this information to prevent unwanted problems should be simple because most factor funding companies offer details about how they resolve their clients’ unpaid accounts receivable that is easy to find online.
As you can see, finding the best factor funding cost structures for your firm requires searching for factor funding companies that offer the best funding recourse periods, the best fee structures and the best funding terms. Finding factoring companies that offer these benefits is easy if you organize your search in advance. Therefore, be sure to use the suggestions mentioned above to organize your search for factoring company that offers the best cost structures to clients.