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The Invoice Factoring Companies Shopping Guide

Before you rush off to find an invoice factoring company to work with, make sure you understand how invoice financing works, the types of invoice factoring companies and how to best shop around for a factoring company that will serve you best.

There are many ways to break down receivables financing companies: By terms, industry, and channel are just a few categories worth highlighting. Knowing which type of company best suites your needs will help you focus your search. Read on to arm yourself with the knowledge to shop for the company that’s best for you.

Notification Invoice Factoring CompaniesNotification vs. Non-notification

Factoring companies that use notification will only work with you on the condition that they notify your clients about your relationship with the company and request that your client assigns all future receivables to them. By notifying your clients, the factor can be more certain that they will be paid according to the terms agreed. This lowers the factor’s risk.

Companies that offer a non-notification option are happy to work with you without notifying your clients of the arrangement between you and the company. However, they often will still require you to change your remittance information to a lockbox and bank account in your business name, which they control. Companies that offer non-notification factoring will sometimes also offer notification factoring. This will help you qualify for a higher credit line that in a pure non-notification arrangement.

Contract Invoice Factoring Companies

Contract vs. No Contract

All things being equal, companies that require contracts will always advertise lower rates than companies that don’t require contracts. Just keep in mind that lower rates does not necessarily translate directly into lower costs; be sure to check the factoring agreement closely. What you gain in pricing, you loose in flexibility and control. If you only need to factor 50% of your receivables, but are forced to factor 100% due to long-term contracts and monthly minimums, you are essentially doubling your cost. For maximum flexibility and control over your costs, go with a no-contract, no-minimum factoring company. And beware of companies’ teaser rates if they use contracts: low rates are usually padded with additional fees that you don’t learn about until you are stuck with them. Often times, these hidden fees can more than double your financing costs and leave you feeling nickeled and dimed.

Recourse vs Non-recourse

Factoring firms that work under a recourse contract are able to pursue their clients if the invoice is not paid by the debtor. In contrast, non-recourse companies only have “recourse” against the debtor.

Online Invoice Factoring CompaniesOnline vs. Offline

The vast majority of traditional invoice factoring companies are also offline. They are usually much more likely to require long-term contracts, monthly minimums, and more aggressive with hidden fees. The fees usually include application fees, background check fees, field examination fees, attorney’s fees, UCC filing fees, invoice submission fees, ACH fees and Wire fees, along with other creatively named fees and charges. What’s more, most traditional factoring companies are still heavily paper-based. They will often ask you to overnight them original documents, including invoices, client contracts and bills of lading.

In contrast, online invoice factoring companies offer a convenient online dashboard where you can easily view and submit your invoices. Some even offer a mobile app. Both of these mean more speed, both in the application and in getting funding after you’re approved. Many online factoring companies offer you the convenience of an online application and dashboard for ease of use but will also make people available for you to speak to should you need additional support.

Another difference between online and offline factoring companies is that many traditional factors will want to take over your accounts receivable function. This means they will be responsible for sending all invoices and collecting on them. While this outsourcing appeals to some small businesses, others prefer to retain ownership over their customer relationships. You should determine whether you see this as a benefit or drawback for your own business.

One benefit of offline receivables financing companies is that often times they will take the time to come see you in person. This is partially to build the relationship, but it also helps them with the underwriting and due diligence — they want to verify that you have a business and are trustworthy.

On the other hand, because online factoring companies are more likely to serve a national client base, you’re also more likely to find them on third party review sites like TrustPilot, the Intuit Apps Center, and NerdWallet. This gives you visibility into other clients’ experiences with the company. In contrast, most traditional factors are regionally focused and may not have a sufficiently large client base to have online reviews from reputable third party sites. Here are links to a few third party sites when you can read unbiased third party reviews:

Industry-Focused Factoring CompaniesConstruction Invoice Factoring Companies

While factors serve a broad range of industries, some industries are especially heavy users of factoring (transportation, apparel, and staffing come to mind), and others require specialization (medical and construction, for instance). For these reasons some invoice financing companies specialize in specific industries.

Construction Factoring

Many construction firms are forced to look for specialized construction factoring companies because construction has unique challenges that general factoring companies will not deal with. Mechanics liens and “pay when paid” arrangements are especially difficult for non-specialized factors to work with.

Medical Factoring

HIPAA requirements and other regulatory constraints make medical receivables difficult to factor and require specialized invoice financing companies. However, if you invoice medical companies (hospitals, insurers, etc.) this does not necessarily make it a “medical receivable”. To count as a medical receivable, the invoice needs to be pertaining to a medical product or procedure, for a specific patient and paid by an insurance company  . If your company provides software services to an insurer or staffing services to a hospital, for example, a general factoring company should be able to serve you well.

Trucking Factoring

While plenty of trucking companies work with industry-agnostic factoring companies, others like working with specialized companies that offer additional benefits like fuel advances, fuel cards, freight broker credit checks and even higher advance rates. Which makes sense for you will depend on how much value you place on these specific features vs. the reputation of and benefits offered by the general factoring companies.