Factoring and Choosing the Right Invoice Finance Lender

Avoid unexpected costs and problems by performing proper due diligence on any factoring lenders offer.

Once your trade debts are sold it is the factoring lenders responsibilty to collect the debt. If there are any payment problems it will be the factor who contacts your customer so it should be a priority to check how and when the lender will make contact. Make sure you have read the standard letters that will be sent as any heavy handedness either written or verbal could result in a lost customer!

Searching the internet and asking at local networking events should reveal if there could be potential "customer care" problems.

The basic cost of factoring will include a service fee (watch out for minimum fees), interest charged on any outstanding amount plus an additional fee where the non-recourse option (insurance against bad debts) is taken. Make sure you find out any other potential factoring charges, for instance where a debt is paid late, renewal or termination fees.

The first and most obvious point is to check what proportion of any factored invoice will be paid up front. Will the invoice factoring advance meet your needs? Check the minimum term of any factoring agreement and notice periods for termination. One reason for utilising factoring is to help your company grow, check whether new lower limits can be imposed and if so how much notice you will receive, as any changes to the facility credit limit could have a major impact on your business!