Cash flow is typically the main concern for any company that is looking for accounts receivable factoring. However, there is a lot more that goes into accounts receivable factoring than just cash flow, and it is these other services that are also important to consider when selecting the correct factoring company to work with. While common services include credit approvals, collections, and credit insurance, there are other services that factoring companies can offer as well.
Every factoring company should provide you with credit approvals; after all, one of the main benefits of factoring is that funding is based on your customers' good credit rather than your own credit. By providing you with credit approvals, your factoring company is making sure that your customers are credit worthy and will pay their invoices when they become due. Not only does this take the responsibility of credit checking off your back, it also saves you money as you don't need to subscribe to expensive credit agencies such as Dun and Bradstreet.
Of course, it is one thing to provide credit checking of your accounts; it is another thing to provide you with credit approvals. At DSA Factors we are proud to offer our clients an over 98% approval rate. Unlike banks and many other factoring companies who look for reasons to turn down your accounts, we look for reasons to approve your accounts. Furthermore, we will work with your customers to build up their credit, so as long as they make timely payments, we will be willing to raise their credit limit over time.
It would be nice if everyone would just send you a check on the day that an invoice is due, but in reality we all know that this isn't the way things work. Reminding your customers that payment is due is just a normal part of doing business. Whether you are sending out letters or making phone calls, collecting your receivables is a very time consuming process and can be frustrating at times. Since your factoring company is purchasing your receivables, they should also handle all of your collection work for you. This includes, sending out account statements, e-mailing copies of invoices, and making phone calls.
The most obvious benefit of having a factoring company handle your collections for you is that it may be able to save you some payroll as you won't need to hire someone to manage your accounts receivable. However, another benefit is that factoring companies actually have more leverage in collecting prompt payments than you would have in collecting on your own. If a customer doesn't need any new merchandise from you they may reluctant to pay you in a timely manner. However, factoring companies have many clients and not paying a factoring company in a timely manner means that they won't be able to order new merchandise from a handful of vendors.
While it may seem scary to let another company deal with your customers, it is important to keep in mind that factoring companies are not collection agencies and will always treat your customers with respect. A factoring company is purchasing current receivables, not past due receivables, so there is no need for them to be rough with your customers. Furthermore, your factoring company's success is tied directly to your company's success, getting reorders is what allows both you and your factoring company to grow. In fact, if an account becomes seriously past due, your factoring company will probably hand them over to a collection agency just like you would.
If your factoring company offers non-recourse factoring, then that means that they provide you with credit insurance on your accounts. This means that if a customer is unable to pay for merchandise due to financial problems, that you still get to keep the funds that your factoring company provided you with. Of course with any insurance it is important to look at what is covered. Some factoring companies will only cover you in situations where a customer files for bankruptcy or goes out of business, other factoring companies will cover you for deadbeats as well. At DSA Factors, no matter what your customer's situation is, your invoices are insured.
While it is possible to get credit insurance from insurance companies, generally they will require you to deal in very large volumes and to be dealing with very credit-worthy accounts. As a result, if you have small invoices, or sell to independent retailers and not major corporations, it will be very difficult to get credit insurance through an insurance company. With non-recourse factoring, you can rest assured that all of your accounts and all of your invoices will be covered, regardless of how small they may be.
Many factoring companies provide their customers with real-time reporting on their accounts. At DSA Factors, we will send you an aging of your accounts once a week; however, you also have access to real-time aging from our web page 24/7. Furthermore, we give you access to remittance advice from all payments we ever sent you directly on the web page. Other reports give you the ability to track open approvals and retrieve sales reports so you can see how much volume you've done with each of your accounts over a specified period of time. Plus, if there is something you would like to see that isn't available on our web page, just give us a call and we will do our best to provide it for you, and maybe even add it to our web page.
While you do receive improved cash flow with accounts receivable factoring, there are times when that improved cash flow may not be enough. This is often times the case when you get a large purchase order from a major retailer. If you manufacture overseas, often times your factory will require a 30% deposit to start production and the other 70% prior to shipment. This results in you paying for the merchandise 30-60 days prior to when you are able to invoice your customer and factor the invoice. In situations like this, purchase order financing can provide you with a short term loan so that you have the additional funding that you need. At DSA Factors we can provide you with incremental purchase order financing so that you receive the funds you need when you need them and are able to minimize the amount of interest that you need to pay.
Of course the accounts receivable factoring isn't free, and you are going to have to pay a factoring fee. It is important to keep in mind that when comparing rates, you need to compare all of the costs, and not just the factoring fee. Many factoring companies lock you into long term contracts and require that you factor all of your receivables with them. Another common cost to look out for is the minimum volume requirement where a factoring company will require you to reach a specified sales volume and if you don't they will still charge you fees based on those volumes. At DSA Factors there is no need to worry about any of this. Of course we will charge you a factoring fee, but we don't have any long term commitments, we don't require you to factor all of your receivables, and we don't have any minimum volume requirements.
Another thing to look at is whether you are getting a fixed-rate factoring fee or if you will be charged interest for as long as the money is out. With a fixed-rate fee the fee is higher, but you don't pay interest even if your customer pays you late. Factoring companies that charge you interest typically offer incredibly low fees, but from the day they fund you until the day they get paid by your customers they will charge you interest. Typically when you do the math you will find that both rates are comparable, although typically companies that charge interest don't tend to advertise the interest charges, but rather focus on the lower factoring fee. A company that charges interest also has less motivation to get paid on time, and may wait longer to contact a customer that becomes past due than a factoring company that offers a fixed-rate. At DSA Factors we offer fixed-rate factoring to our clients. We find that it not only saves you money, but that is more honest and much easier to understand.
Just like with any other company that you deal with, it is one thing to provide you with service, but another thing to provide you with fast and friendly service. While there are many factoring companies out there, many of the larger ones are owned by banks or other financial institutions. You may even find factoring companies who are subsidiaries of overseas companies. Furthermore, the fintech factoring companies not only have to answer to their investors, but most have been in business for less than a decade. While they may provide you with most, or all, of the services above, it is important to think about the quality of those services. DSA Factors is a family owned and operated business based in Chicago, Illinois that has been factoring for over 30 years. Whenever you call you will always be able to speak with one of our principals. As a result, we can provide you with a much higher level of service than the other larger factoring companies out there. Best of all, not only do we offer you with exceptional service, but we also offer very competitive rates that often times are lower than what the bigger guys have to offer.