Picking an Invoice Factoring Company

Waiting to get paid and having outstanding invoices can lead businesses to fall behind on other expenses, such as inventory, payroll and operating costs. Invoice Factoring can help with that. Invoice factoring is a form of financing that allows businesses to get cash advances on its accounts receivables. Basically, a business is “selling” its invoices at a discount to an external financing company, like Kover Capital. But what questions should you ask before deciding on which, if any, factoring company to use?

What types of factoring services do they offer?

• The first step in evaluating the answer to this question is understanding what type of factoring would benefit your business the most. There are many different types of factoring and some may be more beneficial to your business than others.
• Spot Factoring allows you to factor one single invoice on a one-time basis with no contracts. But take note that fees tend to be higher with this type.
• Whole Ledger Factoring or Full Turn Factoring requires that your business submit all client invoices. Because contracts are in place, rates are lower than spot factoring, however, many whole ledger factors will charge a large termination fee if that contract is broken.
• Recourse Factoring is a little more unsteady, as businesses take the risk of its customers failing to pay an invoice on time. If that invoice is not paid back to the factoring company, the business owner must pay the cost as well as purchase the invoice back from the factor. Because this form is not as risky for the factoring company, less fees are charged to the business.
• Non-Recourse Factoring takes the liability off of the business if its customers do not pay. In this case, the fees tend to be higher because more risk is placed on the factoring company.

What are their terms and rates?

• Fee rate structures will be either variable or flat. Generally, the more invoices the business factors, the lower the rate. These rates are determined by a variety of items, including business industry, volume of invoices, net terms of invoice, type of service and quality of clients.

What are the associated costs and fees?

• Termination fees occur when a business cancels its long-term contract. These fees can range from 3-10% of its factoring credit line.
• Monthly minimum fees occur if a business does not factor enough invoices a month, per the agreed upon quantity.
• Maintenance fees are charged on a monthly basis to maintain and keep a business’ account open.
• Due Diligence fees are charged if the factoring company needs to verify a client’s credit background. These fees range from a few hundred to a few thousand dollars, depending on the extent.

What is the factoring company’s advanced rate?

• The advanced rate is the percentage of a business’ invoice value that Kover Capital will give you upfront. The advance rate for Kover Capital is ****.

So, is invoice factoring something good for your business? If so, make sure you find an invoice factoring company that provides the features, flexibility and terms that you want. Many factoring contracts are long-term so it’s best to find a company that you like working with, even if that takes a little background research!

Kover Capital offers invoice financing for business owners who want flexibility with their cash flow. For more information, please contact us at 936-899-5629 or email info@kovarcapital.com.