Every business owner knows the importance of grabbing the opportunity when it comes knocking on their door. After all, it might be the break your company has been looking for. Unfortunately, funds are not always readily available. On the good side, factoring agencies can help you catch that train and not miss your chance.
Invoice factoring is a process where a business sells its outstanding invoice to a service known as a factor. The factor then collects the payment from the invoice and then returns the rebate to the business and long periods of payback. Tabbank.com further explains that it can be seen as a form of lending minus the lengthy process and huge interest fees.
Factoring is often used by businesses in the service sector and those who need immediate funds. Many agencies offer factoring services, but not all of them are the right one for you. Therefore, it’s important to choose wisely.
1. Know the type
There are three major types of a factoring program. Recourse is the most common one where the business owner takes responsibility for the risks should the customers fail to pay the factor. Non-recourse is the opposite where the factor assumes the risk of customer’s failure to pay. The fees for these types are obviously higher. Lastly, spot factoring is done on a one-time basis with use of a single invoice.
2. Consider the fees
Factoring fees differ from one company to another and depending on the contract agreed upon. Aside from the actual fees, additional payment for application and service fees might also be included.
3. Contract and services
Before signing the contract, make sure you understand the terms and policies included in your agreement. This includes their terms of services and fees among others. Understanding the contract and being comfortable with it is important.
Considering to hire a factor? Keep these things in mind and have the right deal for you and your business.