With the rapid growth recently of both the amount of factoring companies and the amount of different products that they feature the product range of choices for an individual has increased dramatically. However, with that increase has come a more complex decision whenever choosing between different factoring companies and these products that they offer.
This article is worried with providing the reader with a structure within which to create that choice whenever choosing factoring or invoice discounting.
The Factoring Company
The number of available factoring companies is quite wide and may 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 popular household names that you will recognise. Within the independent sector, there are always a large number of factors that also differ substantially in terms of size. At the tiniest end, a factor might have a handful of clients services by a handful of staff up to and including large independent which could have tens and thousands of clients and several hundred staff over numerous nationwide locations. This complicates the choice further in that most independents aren’t of similar size.
How to decide on a Factor (also called a Factoring Company)
There are advantages and disadvantages with each sector. Below is just a brief summary of the key considerations.
High Street Bank Owned Factors
High street banks are substantial organisations and so their clients may benefit out of this in terms of financial security. The odds 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 really a personal as they would like. In some instances the factor may have a call centre style method of 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 result in another feeling of isolation for the client.
Also, bank owned factors often rely upon their bank network to provide nearly all their new business. In some instances, this can lead to a feeling of complacency about acquiring new clients as they’ve 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. In many cases, the client will retain an overdraft facility making use of their bank after they set up a factoring facility, although this can often be “in case there is need” only. Many clients are concerned that if their overdraft and their factoring facility is managed by the same bank, they could see both withdrawn simultaneously if their business should start to have financial difficulties.
Lastly, you should look at the banks risk policies or rules. We locate number of clients that complain that the lender owned factor that they cope with is constrained by the banks rule book. This could result in deficiencies in 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 high street bank owned factor could be the right solution for your business.
Independent Factoring Companies
Independent factors aren’t owned by a high street bank but they may nevertheless be owned by substantial businesses that offer almost the same degree of comfort to you while the client. Included in the process of selecting a factor, it’s important that you understand the ownership of the factoring companies that you are considering.
Clients often find that an independent factor can provide them a more personal, relationship based service. However, this is not to everyone’s taste and some clients are seeking a more transactional service they can manage within the internet. The independents in many cases are reliant on client recommendation for new business, rather than bank network, and so it could be argued they’ve to be extremely centered on ensuring that their service can be as strong as possible.
How big is the company that the client is dealing with should 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 among our advisers can give you more details concerning the factors that you might be considering or the ones that would meet your requirements.
Another key aspect to take into account 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 in which it’s conducted can vary enormously. In a few organisations there is a credit controller focused on your account such as you are able to replace your personal staff with that individual and save money. In other factoring companies the collections service can be extremely different with pools of staff chasing debtors so relationships are less probably be developed with debtors.
In other cases, only the very best few clients are contacted by telephone by the factor. In some instances, 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 a suitable arrangement if you have the resource to undertake the credit control and you can argue that this can spend less on the cost of the service. In any event, as a potential client you need to comprehend the degree of service as you are able to expect and the implications on the cost of the facility to ensure that you can make the most effective decision for your business.
Once more, our advisers will have the ability to provide you with 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 numerous aspects to take into account when selecting a factoring company, who owns the company, how financially stable will they be, how will you be serviced and how will the collections be handled. Many factoring companies will have the ability to provide you with case studies about existing users of their products that may be in similar industry sectors to you. They are often able to place you touching existing clients that can inform you firsthand about the grade of the service that they receive.
They are just a some of the questions that you may ask but we hope this provides you with some assistance to make the choice. Our advisers are always available to guide you though the process and our service is both completely independent and completely cost-free for you yourself to use.