A Complete Guide To Choosing A Factoring Company

Not all factoring companies are right for your business. There are several factors that one needs to put into consideration when comparing Birmingham factoring companies. How does one go about choosing the right factoring company? There are several questions that you need to ask before making the decision.

Questions to ask when choosing a factoring company

There are hundreds if not thousands of factoring companies out there. As a customer, you are spoilt for choice and you are allowed to be as flexible as possible. Here are some of the questions that you can ask:

  • What are the terms?

A long-term contract would be ideal especially if it includes flexible rates. Most factoring companies will adjust their rates based on increased factoring volume or competitive offers from other factors.

The industry standard for most factoring agreements is a one-year contract. With most factors, the contract renews automatically unless you give a notice about 60-90 days in advance.

  • What are the charges? Are there any hidden fees?

The charges usually vary depending on the industry and the factoring company involved. Some factors charge a flat factoring which is a percentage of the total invoice value while other companies charge additional fees that cover money transfers, software, collateral, and other costs of doing business.

It’s very important to ensure that the company you choose to work with is upfront and transparent with you about its fees.

  • What’s the application process?

Different factoring companies have some criteria that they use to select new clients. Check to see that the factoring company explains to you their process for approving you as a client. Some common factors that factoring companies consider include:

  • The clients’ credit score
  • The customers’ credit ratings and payment histories

The company should also be clear on the number of days it’ll take to review and process the application. Usually, businesses need to know this information because they need a quick injection of cash flow.

  • What technology is available?

Can you access your account information online? The factoring company that you should choose to work with should make it easy for you to see your account balance, aging, and reserve reports online. All this is very critical information that’s needed to run your business effectively.

  • Do they have enough capital to grow with you?

As your business grows, so should the funding of invoices. Find out as much information as you can about the factoring company’s capital structure and client base. What is the factoring volume of their largest client? What is a typical account size? Is there a limit to how many debtors the company can take on?

Generally, newer companies rarely have the resources to fund your invoices as you grow. Factoring companies that have been in business and have served for several years have the capacity to finance your company as it grows. So they’re a safer bet.


Always make sure that you research all the potential companies before working together. The first place that you can start looking at is Google. Check the reviews left by other businesses that have already worked with the factoring company to see what their factoring experience was like. If the other customers are satisfied, then that’s a sign that you can go ahead and work with them.

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