How To Choose a Factoring Company
With the rapid growth in recent years of both the number of factoring companies and the number of different products that they offer the 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 the products that they offer.
This article is concerned with providing the reader with a framework within which to make that choice when choosing factoring or invoice discounting.
The Factoring Company The range of available factoring companies is very wide and can be divided into high street bank owned factors and independent factors.
The high street banks that own factoring companies include many of the well known household names that you will recognise.
Within the independent sector, there are a large number of factors that also differ substantially in terms of size.
At the smallest end, a factor may have a handful of clients services by a handful of staff up to a large independent that may have thousands of clients and several hundred staff over a number of nationwide locations.
This complicates the choice further in that all independents are not of similar size.
How to choose a Factor (also known as a Factoring Company) There are advantages and disadvantages with each sector.
Below is a brief summary of the key considerations.
High Street Bank Owned Factors High street banks are substantial organisations and so their clients will benefit from this in terms of financial security.
The chances of the factoring company failing or running out of funds is considerably reduced.
However, there are also a number of potential drawbacks.
Clients of bank owned factors often complain that the service is not a personal as they would like.
In some cases the factor may take a call centre style approach to managing their clients, without a single nominated point of contact.
In a few cases this call centre support has even been outsourced abroad which can lead to a further 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 cases, this may lead to a sense of complacency about acquiring new customers as they have a fairly 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 a different party from which they bank.
In many cases, the client will retain an overdraft facility with their bank after they establish a factoring facility, although this can often be "in case of need" only.
Many clients are concerned that if their overdraft and their factoring facility is managed by the same bank, they could 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 number of clients that complain that the bank owned factor that they deal with is constrained by the banks rule book.
This can lead to a lack of flexibility regarding funding and particularly supporting a client through financial difficulties.
However, if you are seeking a well known name to provide your facility, a high street bank owned factor may be the right solution for your business.
Independent Factoring Companies Independent factors are not owned by a high street bank but they may still be owned by substantial businesses that provide almost the same degree of comfort to you as the client.
As part of the process of choosing a factor, it is important that you understand the ownership of the factoring companies that you are considering.
Clients often find that an independent factor can 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 can manage over the internet.
The independents are often reliant on client recommendation for new business, rather than a bank network, and so it might be argued that they have to be extremely focused on ensuring that their service is as strong as possible.
The size of the business that the client is dealing with must be considered, too small and you could face instability problems but with size comes the challenge of maintaining a personal service and relationship.
The factoring market has factors at all stages along this spectrum and one of our advisers can give you more information about the factors that you may be considering or those that would meet your requirements.
Other Considerations Another key aspect to consider is credit control or the collections service (if you require this service).
With factoring, this service normally comes as part of the service although the way it is conducted can vary enormously.
In some organisations there will be a credit controller dedicated to your account such that you can replace your own staff with that individual and save money.
In other factoring companies the collections service can be very different with pools of staff chasing debtors so relationships are less likely to be developed with debtors.
In other cases, only the top few customers are contacted by telephone by the factor.
In some cases, 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 if you have the resource to undertake the credit control and you could argue that this might save money on the cost of the service.
Either way, as a potential client you need to understand the level of service that you can expect and the implications on the cost of the facility so that you can make the best decision for your business.
Once again, our advisers will be able to provide you with guidance based on the actual experiences of clients that we have already placed with particular factoring companies.
Summary - How to Choose a Factor So to summarise, there are many aspects to consider when selecting a factoring company, who owns the business, how financially stable will they be, how will 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 their products that may be in similar industry sectors to you.
They may also be able to put you in touch with existing clients that can tell you first hand about the quality of the service that they receive.
These are just a few of the questions that you might ask but we hope this will give you some assistance in making 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.
However, with that increase has come a more complex decision when choosing between different factoring companies and the products that they offer.
This article is concerned with providing the reader with a framework within which to make that choice when choosing factoring or invoice discounting.
The Factoring Company The range of available factoring companies is very wide and can be divided into high street bank owned factors and independent factors.
The high street banks that own factoring companies include many of the well known household names that you will recognise.
Within the independent sector, there are a large number of factors that also differ substantially in terms of size.
At the smallest end, a factor may have a handful of clients services by a handful of staff up to a large independent that may have thousands of clients and several hundred staff over a number of nationwide locations.
This complicates the choice further in that all independents are not of similar size.
How to choose a Factor (also known as a Factoring Company) There are advantages and disadvantages with each sector.
Below is a brief summary of the key considerations.
High Street Bank Owned Factors High street banks are substantial organisations and so their clients will benefit from this in terms of financial security.
The chances of the factoring company failing or running out of funds is considerably reduced.
However, there are also a number of potential drawbacks.
Clients of bank owned factors often complain that the service is not a personal as they would like.
In some cases the factor may take a call centre style approach to managing their clients, without a single nominated point of contact.
In a few cases this call centre support has even been outsourced abroad which can lead to a further 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 cases, this may lead to a sense of complacency about acquiring new customers as they have a fairly 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 a different party from which they bank.
In many cases, the client will retain an overdraft facility with their bank after they establish a factoring facility, although this can often be "in case of need" only.
Many clients are concerned that if their overdraft and their factoring facility is managed by the same bank, they could 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 number of clients that complain that the bank owned factor that they deal with is constrained by the banks rule book.
This can lead to a lack of flexibility regarding funding and particularly supporting a client through financial difficulties.
However, if you are seeking a well known name to provide your facility, a high street bank owned factor may be the right solution for your business.
Independent Factoring Companies Independent factors are not owned by a high street bank but they may still be owned by substantial businesses that provide almost the same degree of comfort to you as the client.
As part of the process of choosing a factor, it is important that you understand the ownership of the factoring companies that you are considering.
Clients often find that an independent factor can 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 can manage over the internet.
The independents are often reliant on client recommendation for new business, rather than a bank network, and so it might be argued that they have to be extremely focused on ensuring that their service is as strong as possible.
The size of the business that the client is dealing with must be considered, too small and you could face instability problems but with size comes the challenge of maintaining a personal service and relationship.
The factoring market has factors at all stages along this spectrum and one of our advisers can give you more information about the factors that you may be considering or those that would meet your requirements.
Other Considerations Another key aspect to consider is credit control or the collections service (if you require this service).
With factoring, this service normally comes as part of the service although the way it is conducted can vary enormously.
In some organisations there will be a credit controller dedicated to your account such that you can replace your own staff with that individual and save money.
In other factoring companies the collections service can be very different with pools of staff chasing debtors so relationships are less likely to be developed with debtors.
In other cases, only the top few customers are contacted by telephone by the factor.
In some cases, 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 if you have the resource to undertake the credit control and you could argue that this might save money on the cost of the service.
Either way, as a potential client you need to understand the level of service that you can expect and the implications on the cost of the facility so that you can make the best decision for your business.
Once again, our advisers will be able to provide you with guidance based on the actual experiences of clients that we have already placed with particular factoring companies.
Summary - How to Choose a Factor So to summarise, there are many aspects to consider when selecting a factoring company, who owns the business, how financially stable will they be, how will 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 their products that may be in similar industry sectors to you.
They may also be able to put you in touch with existing clients that can tell you first hand about the quality of the service that they receive.
These are just a few of the questions that you might ask but we hope this will give you some assistance in making 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.
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