Choosing the Right Invoice Factoring Company

Contracting with an invoice finance company to fund and collect your accounts receivables through an invoice factoring agreement can be the best or worst decision you will make as a business.

Invoice factoring provides funding and collection of your outstanding, or late, customer invoices on an ongoing basis. It differs from invoicing discounting, which funds individual invoices at a discount on a case by case basis. The former thus requires both the company seeking the funding and the funder to have a close, ongoing relationship, with the invoice finance company effectively operating as an extension of your business.

Like any ongoing partnership with a supplier you rely upon trustand communication to build your business.You need to do your upfront homework carefully to ensure that you understand what you are signing up for and how much it is going to cost.

The invoice finance company will be the primary source of contact with your customers going forward unless you decide to handle the collections yourself. As such, they need to have all the credentials and quality customer service your customers have come to expect from your company.

Here are the most important factors to consider when pinpointing the right invoice factoring company for your business:


Many companies provide invoice factoring , and the number is growing all the time. As such, it's critical that you establish whether the company has the experience, track record and expertise you believe positions it well enough to give you the level of service and confidence in their ability to deliver going forward.

You will find some invoice finance companies will operate traditionally, while others will operate predominantly digitally, which could give you quicker, more efficient, and reliable access to their services. Choose the one that you feel most comfortable with because the traditional finance company may have built up many years of experience. Still, a lack of digital services could signify a lack of innovation. A digitally-based invoice finance company, on the other hand, may not have much of a track record but equally may have made a transition to a new era and has both attributes.

The best way to research your options and to come up with a shortlist is to combine word of mouth with an online search before engaging with a shortlist of companies you feel do meet your requirements.


It is critical you go over the contract the invoice finance company draws up for you to understand the exact nature of the agreement you are entering. It is not sufficient to believe that the information the invoice finance company has verbally shared with you will be reflected as such in the contract. You need to ensure you have complete transparency on the nature of all, including hidden fees, turnaround times, minimum invoice funding values, penalty clauses if you want to terminate the agreement early, and whether you are receiving recourse or non-recourse financing.


Before you enter any agreement, you need to ensure that the invoice finance company has explained its fee structures clearly and that there are no hidden fees of which you are not aware. Also, find out under what circumstances the charges could be raised or reduced.

The most apparent fee will be the discount fee. Every invoice factored will negotiate a discount that will apply to each invoice funded. The discount could range from 70% to 95%. The discount fee is taken off the balance of the invoice once the customer has paid. Thus your company will get the balance owing less the fee at that point.

Other fees that you should look out for are penalties for early termination of the agreement, which could well prove onerous if you haven't established this upfront. The factoring company may well also charge for credit checks on your customers to ensure they are reliable payers. Find out whether fees you will pay fees on the total value of the invoices and whether there is a tiered fee structure that increases on smaller amounts and is lower on higher amounts.

Recourse Versus Non-Recourse Financing

Many invoice finance companies will offer you the option of recourse or non-recourse financing. You can expect to pay more for non-recourse funding because the risk of a customer defaulting on your invoice remains with the factoring company. In contrast, in recourse financing, you will remain financially responsible for the invoice amount in the event of the customer not paying. It would be best if you weighed up the risks versus the cost of getting the more extensive risk cover offered by non-recourse financing.

Service and Reporting Practices

Invoice factoring is not just about the funding support you receive from the finance company. Service and reporting practices are as important because it is the quality of these that you – and, more importantly, your customers will experience throughout the length of the professional relationship. Find out whether you will have access to a person and not just an online service centre if you have any queries or issues with the invoice financing process.

The invoice factoring company must also detail how long the process of setting up the agreement will take, as well as the time frame in which you can expect payment for the invoices. It is also essential to be able to rely on an efficient and transparent reporting process so that you can check-in at any time to see how the invoice collection process is proceeding.

Companies seeking invoice financing are fortunate in that choice is abundant. It just takes time and effort and knowing what to look for to make sure that you are choosing the one that best fits your business and its culture and objectives.

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