With the rapid growth recently of both the number of factoring companies and the number of different products that they give the product range of choices for the user has increased dramatically. However, with that increase has come a more complex decision when choosing between different factoring companies and these products they offer.
This short article is concerned with providing the reader with a construction within which to create that choice when choosing factoring or invoice discounting.
The Factoring Company
The range of available factoring companies is extremely wide and may be split into high street bank owned factors and independent factors. The high street banks that own factoring companies include what is a factoring company many of the popular household names that you will recognise. Within the independent sector, there are a large number of factors that also differ substantially with regards to size. At the tiniest end, one factor could have a handful of clients services by a handful of staff up to large independent that will have a large number of clients and several hundred staff over numerous nationwide locations. This complicates the decision further in that most independents aren’t of similar size.
How to choose a Factor (also known as a Factoring Company)
You will find advantages and disadvantages with each sector. Below is just a brief summary of the important thing considerations.
High Street Bank Owned Factors
High street banks are substantial organisations and so their clients will benefit using 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 numerous potential drawbacks. Clients of bank owned factors often complain that the service is not really 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 few cases this call centre support has even been outsourced abroad which could result in a further feeling of isolation for the client.
Also, bank owned factors often rely upon their bank network to supply the majority of their new business. Sometimes, this can result in a feeling of complacency about acquiring new customers 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’ when 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 once they begin a factoring facility, although this can often be “in case of need” only. Many clients are worried that if their overdraft and their factoring facility is managed by exactly the same bank, they may see both withdrawn simultaneously if their business should start to see financial difficulties.
Lastly, you should consider the banks risk policies or rules. We come across a number of clients that complain that the bank owned factor 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 well known name to supply your facility, a higher street bank owned factor could be the right solution for your business.
Independent Factoring Companies
Independent factors aren’t owned with a high street bank but they may be owned by substantial businesses offering almost exactly the same amount of comfort for you since the client. Within the process of picking a factor, it’s essential that you understand the ownership of the factoring companies that you will be considering.
Clients often find that an independent factor can offer them a far more personal, relationship based service. However, this is not to everyone’s taste and some clients are seeking a far more transactional service that they’ll manage over the internet. The independents in many cases are reliant on client recommendation for new business, rather than bank network, and so it might be argued they’ve to be extremely dedicated to ensuring that their service is as strong as possible.
How big is the business enterprise that the client is dealing with must certanly be considered, too small and you might face instability problems but with size comes the challenge of maintaining an individual service and relationship. The factoring market has factors at all stages along this spectrum and among our advisers can offer you additional information concerning the factors that you may well be considering or those who 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 just how it’s conducted can vary enormously. In certain organisations there would have been a credit controller dedicated to your account such as you are able to replace your own staff with that individual and save money. In other factoring companies the collections service can be quite 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 can be a satisfactory arrangement when you have the resource to undertake the credit control and you might argue that this might conserve money on the expense of the service. Either way, as a possible client you’ll need to understand the level of service as you are able to expect and the implications on the expense of the facility to ensure that you possibly can make the best decision for your business.
Yet again, our advisers will be able to provide you with guidance on the basis of the actual experiences of clients that people have already placed with particular factoring companies.
Summary – How exactly to Select a Factor
So to summarise, there are lots of aspects to think about when selecting a factoring company, who owns the business enterprise, how financially stable will they be, how can you be serviced and how will the collections be handled. Many factoring companies will be able to provide you with case studies about existing users of the products that could be in similar industry sectors to you. They may also be able to place you in touch with existing clients that will tell you first hand about the quality of the service they receive.
They’re only a few of the questions that you might ask but develop this provides you with some assistance to make the choice. Our advisers are always available to steer you though the process and our service is both completely independent and completely free of charge for you to use.