How to Pick the Right Invoice Factoring Company

Factoring has been an effective way for businesses to get funds for centuries. It is use extensively in construction and trucking, but every business can use factoring to get funds more quickly.

When you work with a factoring company, you turn your accounts receivables over to them. They pay you immediately and do the work of collecting the invoices. It is a good system, but like any financial arrangement, you need to be clear about the details and avoid scams.

Here are tips on how to pick the right invoice factoring company so the process goes smoothly.

What Is Their Reputation?

Use the search engines to check for complaints and review of the company. Try to work with one that has experience with other businesses in your field. Ask for a list of clients. Call these people and ask if they have had a good experience with the factoring company.

Avoid These Application Scams

All factoring companies have you fill out an application  before they will come up with an offer for you. But don’t work with a company that asks you for a driver’s license and other official documentation before you get a written offer. It is a scam that attempts to lock you into a contract before you have the information you need to decide.

Did the company send a contract with the application? That’s a red flag. If the factor expects you to sign the contract as part of the application process, it is a scam. Once they have the contract signed, they have power over your invoices. Never fill out the contract before you have the information you need to make a decision.

If the company talks about filing a UCC, or Unified Commercial Code as part of the application process, they are trying to lock you into a contract. But they aren’t giving you the terms so you don’t know what you would be agreeing to. This is another danger flag.

Expect Lots of Paper Work

After you fill out the application, the factoring company should send you many pages documentation, at least 15 to 17 pages or more. If they don’t send multiple pages, something is off. Never sign anything without getting all the information first. If you have any concerns at all, be sure to run it by a financial adviser or lawyer.

What Are Their Rates and Fees?

Do you understand how much the company takes as their fee? How much will you get up front? In most cases, 70% to 90% of the invoice’s face value is considered a fair rate.


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