With the rapid growth recently of both the amount of factoring companies and the amount of different products that they give the product range of choices for the consumer has increased dramatically. However, with this increase has come a more complex decision when selecting between different factoring companies and the products that they offer.
This short article is concerned with providing the reader with a structure within which to produce that choice when selecting factoring or invoice discounting.
The Factoring Company
The product range of available factoring companies is extremely wide and could be split into high street bank owned factors and independent factors. The high street banks that own factoring companies include factoring finance company many of the well known household names you will recognise. Within the independent sector, there are a large amount of factors that also differ substantially with regards to size. At the tiniest end, a factor might have a number of clients services by a number of staff up to and including large independent that will have 1000s of clients and several hundred staff over several nationwide locations. This complicates the choice further in that all independents are not of similar size.
How to select a Factor (also called a Factoring Company)
There are advantages and disadvantages with each sector. Below is a brief summary of the important thing considerations.
High Street Bank Owned Factors
High street banks are substantial organisations and so their clients may benefit out of this with regards to financial security. The odds of the factoring company failing or running out of funds is considerably reduced. However, additionally there are several potential drawbacks. Clients of bank owned factors often complain that the service is not just a personal as they would like. Sometimes the factor may have a call centre style way of managing their clients, with out a single nominated point of contact. In a couple of cases this call centre support has even been outsourced abroad that may cause an additional feeling of isolation for the client.
Also, bank owned factors often rely upon their bank network to offer many their new business. Sometimes, this can result in a sense of complacency about acquiring new clients as they have a reasonably captive audience to work with.
Many clients also state the old adage of not ‘putting all your eggs into one basket’ if they choose to factor with an alternative party from that they bank. Oftentimes, the client will retain an overdraft facility using their bank after they set up a factoring facility, although this can often be “in the event of need” only. Many clients are concerned when their overdraft and their factoring facility is managed by the same bank, they could see both withdrawn simultaneously if their business should start to experience financial difficulties.
Lastly, you should consider the banks risk policies or rules. We come across a amount of clients that complain that the financial institution owned factor that they cope with is constrained by the banks rule book. This may cause too little flexibility regarding funding and particularly supporting a consumer through financial difficulties.
However, if you should be seeking a favorite name to offer your facility, a top street bank owned factor could be the right solution for your business.
Independent Factoring Companies
Independent factors are not owned with a high street bank but they might be owned by substantial businesses that provide almost the same amount of comfort for you while the client. Included in the procedure of picking a factor, it’s essential that you understand the ownership of the factoring companies that you’re considering.
Clients often find that an independent factor can provide them an even more personal, relationship based service. However, this is not to everyone’s taste and some clients are seeking an even more transactional service that they may manage over the internet. The independents are often reliant on client recommendation for new business, rather than bank network, and so it may be argued that they have to be extremely centered on ensuring that their service is really as strong as possible.
How big is the business that the client is coping with must be considered, too small and you can face instability problems but with size comes the task of maintaining a personal service and relationship. The factoring market has factors at all stages along this spectrum and certainly one of our advisers can give you extra information about the factors that you may be considering or those that would meet your requirements.
Another key aspect to think about is credit control or the collections service (if you require this service). With factoring, this service normally comes included in the service although the way it’s conducted can differ enormously. In certain organisations there will be a credit controller focused on your account such as possible replace your own personal staff with this individual and save money. In other factoring companies the collections service can be very different with pools of staff chasing debtors so relationships are less apt to be developed with debtors.
In other cases, only the utmost effective few customers are contacted by telephone by the factor. Sometimes, the factor’s chasing is entirely handled by written automated letters and statements with the client retaining the responsibility to really make the telephone calls. This might be a satisfactory arrangement when you have the resource to undertake the credit control and you can argue that this can conserve money on the price of the service. Either way, as a potential client you need to comprehend the level of service as possible expect and the implications on the price of the facility to ensure that you possibly can make the best decision for your business.
Once again, our advisers will be able to offer you guidance on the basis of the actual experiences of clients that individuals have previously placed with particular factoring companies.
Summary – How to Pick a Factor
So to summarise, there are many aspects to think about when selecting a factoring company, who owns the business, how financially stable will they be, how will you be serviced and how will the collections be handled. Many factoring companies will be able to offer you case studies about existing users of the products that could be in similar industry sectors to you. They are often able to put you touching existing clients that can let you know first hand about the caliber of the service that they receive.
These are only a few of the questions that you might ask but hopefully this will give you some assistance in making the choice. Our advisers are usually available to guide you though the procedure and our service is both completely independent and completely free of charge for you really to use.