Invoice Factoring Questions to Ask

June 11, 2012

Factoring companies: learn the top seven financial questions to ask and then choose the best one to grow your business the fastest: Part 1 of 3.

A factoring company advances funds to your business based upon the dollar amount of your company’s outstanding account receivables. With a quality factoring firm, you no longer have to wait to receive money owed to you by clients. Each accounts receivable factoring firm may charge different fees, though. Here are the high level questions to ask each company to find the best situation for your firm:

Ask the following questions of your prospective factoring companies:

1. Ask each invoice factoring company how they determine fees to spot the best deal.

The fees that you would pay to accounts receivable factoring companies are based on the financial strength and credit worthiness of your customers. Specifics include:

  • How often you bill your customers.
  • How long your customers have been in business.
  • How quickly your customers pay your invoices.

2. Ask invoice factoring companies for a favorable advance rate and quickly increase your working capital.

When working with a factoring firm, you will submit outstanding invoices to them. They will then provide your business with cash based upon your “advance rate.” Customary advance rates range from 75% to 90%, which means you would receive between $750 and $900 for each $1,000 of outstanding invoices submitted.

Learn more about how to choose the right factoring company and solve your cash flow management problems.

For more information on how accounts receivable factoring works, read “Find the best factoring company for your business: how to read an invoice factoring contract like a pro. (Part two).” Find out what other questions you should ask to find just the right factoring firm to help your business really take off, then talk with firms who offer factoring loans and get growing!

Gage Price
Gage is the president of MP Star Financial, founding the company in 1995 to provide invoice factoring and other asset-based lending services, focusing on freeing up cash flow for small to medium-sized businesses. Gage earned his MBA at The Stern School of Business in New York City.