The Best Invoice Factoring Companies: 8 Things to Look For

To compare invoice factoring companies effectively, you need to review key features such as funding limits, costs, service level agreements (SLAs), and how much commitment they will require from you. Our general recommendation is to find a partner—someone who will learn about your business and help you stay well-capitalized for the long haul. Also look for a company that offers the most flexibility. Looking into these important aspects will help you decide which factoring company is the best fit for your business needs.

Since factoring company operations vary, what works for your business may not work for someone else.

To make things easier, we’ve listed the eight main features you should evaluate below along with how important they are based on your situation:

1. Funding limit: If you either have a large invoice, are in an industry where the invoices are large, want the flexibility to fund multiple invoices a month, or you’re not sure how much funding you’ll need in the future for growth projects or other needs, you’ll want to pay attention to funding limits. And this can be a wide range. Funding amounts can be as little as $500 to unlimited funding. 

2. Advance rate: How much of the invoice does the company give you upfront? Many factoring companies advance 80% to 95% and pay you the remaining balance minus the fees when your client pays their invoice. If you need a certain amount of funding to meet financial obligations, you’ll need to ensure you’ll actually get that dollar amount with a high enough advance rate. (FundThrough offers 100% advance rates.)

3. SLAs: When reviewing contracts, consider how quickly the factoring company processes invoices and disburses funds. For example, FundThrough offers rapid processing with same-day funding available after the first funding with a customer. Ensuring fast passthroughs and reliable service can significantly benefit your business operations.

4. Factoring fees. Of course, we all care about how much a service will cost and finding competitive rates. When you’re evaluating the cost of factoring, make sure you check for hidden fees on top of the discount rate (the percent that the factoring company keeps for their fee.) A low discount rate could mean there are hidden fees, like service fees or application fees. You’ll also want to scan the factoring terms and conditions for potential termination fees and transaction fees. It’s also important to assess the value you’re getting for the total invoice factoring cost: Will you get dedicated account management? An online portal where you can manage your funding and get reports? How fast is the customer service response time? Do the reviews suggest its a reliable factoring company?

5. Level of commitment. Some factoring providers require you to sign a factoring contract that says you have to get all invoices for a certain client funded. Others will let you factor only the invoices you choose. In some cases, you may be allowed to select which of your unpaid invoices you’d like to have paid early, but you’ll have to sign a 6-month or annual contract. If you need funding regularly, long-term contracts could save you time. If you need flexibility, looking for a company that lets you choose which invoices get funded is the way to go. (FundThrough allows spot factoring, the option to only fund the invoices you choose.)

6. Experience. This refers to how long the factor has been in business and their experience with your particular industry. Working with an invoice factoring provider that knows about invoicing and payment terms in your industry can save you the work of explaining nuances and increases the odds that they can work with you. For example, trucking companies have different needs than staffing companies – and factoring providers who have worked companies like yours understand the nuances. However, factoring companies that are new or haven’t worked in your industry can do a fine job, too. This depends on how complex invoicing and payments are in your industry.  

7. Approach. Some factoring companies were based on a manual application and payment process. As a result, they have added technology into their funding experience bit by bit. For example, they may have an online application for quotes but no online portal to manage factored invoices. Others have technology as the basis of their approach. The important point here is to look at how efficient the factoring process appears. The last thing you want is to go back and forth forever on paperwork. This is also important for evaluating how quickly they can actually get capital to you. After all, speed is one of the main benefits of business factoring. If a factoring company can’t get funding to you in days upon approval, you might want to consider faster options.

8. Recourse vs non-recourse. Recourse factoring is almost the default setup in North America. Essentially, if the factoring company can’t collect payment from your customer, then the company has the right to request payment from you. With non-recourse factoring, you’re not responsible if your customer doesn’t pay. The difference between these two business funding solutions is that non-recourse factoring is usually more expensive than recourse factoring. If you are concerned that your client won’t pay their invoice, non-recourse is worth considering. But if your client has a strong history of paying every time, on time, you might benefit from the lower cost of recourse factoring.