With the rapid growth lately of both the number of factoring companies and the number of different products that they provide the range of choices for the user has increased dramatically. However, with this increase has come a more complex decision whenever choosing between different factoring companies and the merchandise that they offer.
This article is worried with providing the reader with a platform within which to produce that choice whenever choosing factoring or invoice discounting.
The Factoring Company
The number of available factoring companies is quite wide and could be divided in to high street bank owned factors and independent factors. The high street banks that own factoring companies include what is a factoring company lots of the well-known household names you will recognise. Within the independent sector, there are always a large quantity of factors that also differ substantially when it comes to size. At the smallest end, an issue may have a handful of clients services by a handful of staff up to and including large independent that’ll have thousands of clients and several hundred staff over numerous nationwide locations. This complicates the option further in that all independents are not of similar size.
How to choose a Factor (also called a Factoring Company)
You will find advantages and disadvantages with each sector. Below is a brief summary of the main element considerations.
High Street Bank Owned Factors
High street banks are substantial organisations and so their clients will benefit using this when it comes to financial security. The likelihood of the factoring company failing or running out of funds is considerably reduced. However, there are also numerous potential drawbacks. Clients of bank owned factors often complain that the service is not a personal as they would like. Sometimes the factor may take a call centre style approach to managing their clients, without a single nominated point of contact. In a couple of cases this call centre support has even been outsourced abroad which can lead to another feeling of isolation for the client.
Also, bank owned factors often rely upon their bank network to provide many their new business. Sometimes, this may lead to a feeling of complacency about acquiring new clients as they’ve a fairly captive audience to work with.
Many clients also state the old adage of not ‘putting all your eggs into one basket’ once they choose to factor with an alternative party from which they bank. Oftentimes, the client will retain an overdraft facility using their bank once they begin a factoring facility, although this may often be “in case of need” only. Many clients are concerned that if their overdraft and their factoring facility is managed by exactly the same bank, they might see both withdrawn simultaneously if their business should start to have financial difficulties.
Lastly, you should think about the banks risk policies or rules. We stumbled upon a quantity of clients that complain that the lender owned factor that they deal with is constrained by the banks rule book. This may lead to a lack of flexibility regarding funding and particularly supporting a client through financial difficulties.
However, if you should be seeking a favorite name to provide your facility, a higher street bank owned factor could be the right solution for your business.
Independent Factoring Companies
Independent factors are not owned by a high street bank but they may be owned by substantial businesses that provide almost exactly the same amount of comfort to you since the client. Included in the method of picking a factor, it’s important that you understand the ownership of the factoring companies that you’re considering.
Clients often find that the independent factor can provide them a far more personal, relationship based service. However, this is simply not to everyone’s taste and some clients are seeking a far more transactional service that they can manage within the internet. The independents tend to be reliant on client recommendation for new business, rather than a bank network, and so it may be argued that they have to be extremely dedicated to ensuring that their service is as strong as possible.
How big is the company that the client is coping with must be considered, too small and you can face instability problems but with size comes the process of maintaining an individual 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 concerning the factors that you might be considering or those that would meet your requirements.
Another key aspect to consider 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 may differ enormously. In some organisations there is a credit controller dedicated to your account such that you could 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 likely to be developed with debtors.
In other cases, only the top few clients 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 help make the telephone calls. This may be an acceptable arrangement when you have the resource to undertake the credit control and you can argue that this could cut costs on the expense of the service. Either way, as a possible client you will need to comprehend the level of service that you could expect and the implications on the expense of the facility in order that you possibly can make the very best decision for your business.
Yet again, our advisers will have a way to offer you guidance on the basis of the actual experiences of clients that we have already placed with particular factoring companies.
Summary – Just how to Choose a Factor
So to summarise, there are many aspects to consider when selecting a factoring company, who owns the company, how financially stable will they be, how can you be serviced and how will the collections be handled. Many factoring companies will have a way to offer you case studies about existing users of these products that may be in similar industry sectors to you. They are often able to place you in touch with existing clients that can inform you first hand about the grade of the service that they receive.
They’re merely a some of the questions that you may ask but hopefully this will provide you with some assistance to make the choice. Our advisers are usually available to steer you though the method and our service is both completely independent and completely totally free for you really to use.