With the rapid growth recently of both the number of factoring companies and the number of different products that they feature the product range of choices for the user has increased dramatically. However, with this increase has come a more complex decision when selecting between different factoring companies and the products that they offer.
This information is worried with providing the reader with a construction within which to create that choice when selecting factoring or invoice discounting.
The Factoring Company
The product range of available factoring companies is quite wide and could 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 well-known household names that you will recognise. Within the independent sector, there are always a large amount of factors that also differ substantially when it comes to size. At the smallest end, an issue may have a number of clients services by a number of staff up to large independent that’ll have tens of thousands of clients and several hundred staff over several nationwide locations. This complicates the option further in that most independents are not of similar size.
How to choose a Factor (also referred to as a Factoring Company)
There are advantages and disadvantages with each sector. Below is just a brief summary of the main element 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 are also several 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 take a call centre style way of managing their clients, without a single nominated point of contact. In a few cases this call centre support has even been outsourced abroad which could result in another feeling of isolation for the client.
Also, bank owned factors often rely upon their bank network to provide the majority of their new business. In some instances, this can result in a sense of complacency about acquiring new clients as they have a fairly captive audience to work with.
Many clients also state the old adage of not ‘putting your entire eggs into one basket’ once they decide to factor with a different party from which they bank. Oftentimes, the client will retain an overdraft facility with their bank after they set up a factoring facility, although this could often be “in the event of need” only. Many clients are involved when their overdraft and their factoring facility is managed by the exact same bank, they may see both withdrawn simultaneously if their business should start to experience financial difficulties.
Lastly, you should consider the banks risk policies or rules. We come across a amount of clients that complain that the lender owned factor that they deal with is constrained by the banks rule book. This could result in a lack of flexibility regarding funding and particularly supporting a client through financial difficulties.
However, if you’re seeking a well known name to provide your facility, a higher street bank owned factor may be the right solution for the business.
Independent Factoring Companies
Independent factors are not owned by a high street bank but they could nevertheless be owned by substantial businesses that provide almost the exact same level of comfort to you whilst the client. Included in the process of picking a factor, it is essential that you understand the ownership of the factoring companies that you’re considering.
Clients often find an independent factor could possibly offer them a more personal, relationship based service. However, this is not to everyone’s taste and some clients are seeking a more transactional service that they may manage on the internet. The independents tend to be reliant on client recommendation for new business, rather than a bank network, and so it could be argued they’ve to be extremely dedicated to ensuring that their service is really as strong as possible.
How big the business that the client is dealing with must certanly be considered, too small and you might face instability problems but with size comes the task of maintaining an individual service and relationship. The factoring market has factors at all stages along this spectrum and certainly one of our advisers can offer you extra information concerning the factors that you may be considering or those that 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 it is conducted may vary enormously. In some organisations there will be a credit controller specialized in your account such that you could replace your own staff with this 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 utmost effective 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 might be a satisfactory arrangement when you have the resource to undertake the credit control and you might argue that this might save money on the cost of the service. Either way, as a potential client you need to know the degree of service that you could expect and the implications on the cost of the facility to ensure that you can make the very best decision for the business.
Once again, our advisers will be able to provide you with guidance based on the actual experiences of clients that people have previously placed with particular factoring companies.
Summary – How to Select a Factor
So to summarise, there are lots of aspects to consider when selecting a factoring company, who owns the business, how financially stable will they be, how do you want to 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 are often able to put you in touch with existing clients that will let you know first hand about the caliber of the service that they receive.
They’re merely a several questions that you may ask but we hope this will provide you with some assistance for making the choice. Our advisers are usually available to steer you though the process and our service is both completely independent and completely totally free for you yourself to use.