What Questions Should I Ask a Factoring Company?

The questions worth asking a factoring company fall into four areas: what it costs (the fee structure, the advance rate, and the all-in cost on a real invoice), what you’re committing to (recourse or non-recourse, contract length, minimums, notice and termination terms), how they’ll treat your customers, and how the day-to-day actually works. Walking in with those questions puts you in control and quickly separates the straight-shooters from the slippery ones. A good factor will answer all of them clearly and without hedging.

On cost and fees

• What is your factoring fee, and exactly how is it structured — flat, or does it increase the longer an invoice is unpaid?
• What is the advance rate I’d get, and what determines it?
• What is the total, all-in cost on a real example invoice, including every fee?
• Are there setup, application, wire/ACH, lockbox, credit-check, or monthly minimum fees?

On the contract and commitment

• Is this recourse or non-recourse factoring? If non-recourse, exactly what does it cover and exclude?
• How long is the contract term?
• Is there a monthly minimum volume? What happens if I don’t meet it?
• What notice do I need to give to cancel, and are there termination fees?
• Does the contract auto-renew? How do I opt out?

On how it works day to day

• Do I have to factor all my invoices, or can I choose which ones (selective/spot factoring)?
• How fast will I be funded after submitting an invoice?
• How do I submit invoices, and what supporting documents do you need?
• When and how do I get my reserve back?

On your customers

• How do you handle contact and collections with my customers? (This protects your reputation — listen closely to the answer.)
• Do you check my customers’ credit, and will you tell me if you see a problem?
• Will my customers be notified, or do you offer non-notification factoring?
• Does my signature go on the notice you send my customers, or only yours?

On fit and trust

• Do you have experience with businesses in my industry?
• Can you provide references from clients like me?
• Who is my point of contact, and how do I reach a real person when I need one?

The way a factor responds to these questions is as informative as the answers themselves. Clear, patient, transparent responses are a great sign. Vagueness, pressure, or annoyance at being asked is a warning. You’re choosing a long-term partner who’ll touch your cash flow and your customer relationships — it’s entirely fair to interview them thoroughly before you commit.

Roy Brooks and American Commercial Capital, LLC, has provided invoice-factoring services to Houston-area small businesses since 2003. We work with businesses in San Antonio, Dallas, Austin, Fort Worth, Beaumont, Port Arthur, Corpus Christi, and other nearby Texas cities. If you’d like straight answers to every one of these questions, give us a call at 713-227-3863, contact us here, or fill out our free, no-obligation quote form.

---

Related Reading

• How Do I Choose the Right Factoring Company?
• What Are Hidden Fees I Should Watch Out For?
• Recourse vs. Non-Recourse Factoring: What’s the Difference, and Which One Is Right for You?
• What Makes the Best Factoring Company in Houston? An Honest Answer From Someone Who Runs One

READ MORE FROM AMERICAN COMMERCIAL CAPITAL

Back