With the rapid growth lately of both the number of factoring companies and the number of different products that they feature the range of choices for the consumer has increased dramatically. However, with that increase has come a more complex decision when selecting between different factoring companies and the products which they offer.
This information is worried with providing the reader with a structure within which to make that choice when selecting factoring or invoice discounting.
The Factoring Company
The number of available factoring companies is extremely wide and could be divided into high street bank owned factors and independent factors. The high street banks that own factoring companies include what is a factoring company most of the well-known household names that you will recognise. Within the independent sector, there are a large amount of factors that also differ substantially when it comes to size. At the tiniest end, a factor may have a handful of clients services by a handful of staff up to a large independent that’ll have a large number of clients and several hundred staff over several nationwide locations. This complicates the decision further in that independents are not of similar size.
How to decide on a Factor (also called a Factoring Company)
You will find advantages and disadvantages with each sector. Below is really a brief summary of the key 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’s also several potential drawbacks. Clients of bank owned factors often complain that the service is not just a personal as they’d like. In some instances the factor may have 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 could lead to another feeling of isolation for the client.
Also, bank owned factors often rely upon their bank network to supply many their new business. In some instances, this can result in an expression of complacency about acquiring new customers 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 decide to factor with a different party from which they bank. Oftentimes, the client will retain an overdraft facility making use of their bank once they establish a factoring facility, although this will often be “in case of need” only. Many clients are concerned when 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 look at the banks risk policies or rules. We come across a amount of clients that complain that the bank owned factor which they deal with is constrained by the banks rule book. This may lead to deficiencies in flexibility regarding funding and particularly supporting a client through financial difficulties.
However, if you are seeking a common name to supply 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 might nevertheless be owned by substantial businesses that offer almost exactly the same degree of comfort for your requirements because the client. As part of the process of selecting a factor, it’s essential that you understand the ownership of the factoring companies that you are considering.
Clients often find 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 over the internet. The independents are often reliant on client recommendation for new business, rather than a bank network, and so it may be argued they’ve to be extremely centered on ensuring that their service is really as strong as possible.
How big the company that the client is dealing with must certanly be considered, too small and you could face instability problems but with size comes the task of maintaining your own service and relationship. The factoring market has factors at all stages along this spectrum and one of our advisers can offer you more information concerning the factors that maybe you are considering or those who 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 within the service although the way in which it’s conducted may vary enormously. In a few organisations there will be a credit controller dedicated to your account such as possible replace your personal 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 very best few customers 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 make the telephone calls. This may be an acceptable arrangement when you yourself have the resource to undertake the credit control and you could argue that this can spend less on the cost of the service. In any event, as a potential client you need to know the amount of service as possible expect and the implications on the cost of the facility so that you may make the very best decision for your business.
Once more, our advisers will have a way to provide you with guidance on the basis of the actual experiences of clients that people have previously placed with particular factoring companies.
Summary – How exactly to Select 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 provide you with case studies about existing users of their products that could be in similar industry sectors to you. They are often able to put you in touch with existing clients that could let you know firsthand about the quality of the service which they receive.
They’re only a few of the questions that you might ask but hopefully this will provide 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 free of charge for you to use.