Tips for Factoring Receivables

Tips for factoring receivables: here are some of the top tips for effective invoice factoring from an expert with nearly twenty years of experience.

Tips for factoring receivables - mp star financialThese factoring tips are from Gage Price, the president of MP Star Financial.

  1. Avoid getting locked into a long-term invoice factoring contract. For a company new to factoring receivables or a seasoned factoring client looking for a new factor, a long-term invoice factoring agreement may lock you into the wrong factoring relationship, which can create a great deal of stress.  Leave your options open so you can kick the tires with a factor to find the right relationship for your company.
  2. Be wary of come-on introductory ratesHidden fees abound when factoring receivables, but not at MP Star Financial.
  3. Many super low rates come with monthly minimums or inactivity fees. Look for a factor that is flexible and will work with the ebb and flow of your business.
  4. Understand exactly when your customers’ checks are being applied to your open invoices. Many factors will receive payments and wait several days for the checks to clear before they are applied to the open invoices. The advent of Check 21 has eliminated the need to wait for checks to clear by most banks before being applied. So if you choose a company that waits, know that these clearance charges only serve to increase your invoice factoring fees.
  5. If possible, I would recommend going with an accounts receivable factor company that uses a bank lockbox as opposed to a private lockbox. If payments seem to be taking too long, banks provide, upon request, detailed reports on when checks arrived. This will help you too make sure your customers payments are being applied on time and you are not being improperly charged with clearance charges.
  6. Keep a copy of your contract along with any addendums in a safe place. If there is ever a dispute, you will need to have this agreement to review. In addition, if you do have a long-term agreement, you will need to refer to the contract and any addendums to know when you are eligible to terminate your agreement. Note that many times the term of the contract is reset with each addendum and the date on the latest addendum dictates when you are eligible to terminate the invoice factoring relationship.
  7. Make sure your factor offers secure 24/7 on-line reporting. Make a point of looking at and printing out your reports each week. Promptly dispute any discrepancies. Oftentimes errors or improper charges that are not reported in a timely manner cannot be disputed later.
  8. If your factor provides other services such as payroll tax payments or payroll service, always get a monthly report of all transactions. Remember you are responsible for making sure bills and taxes are paid and making sure items such as W-2s are mailed out. If there was ever a computer crash and your data was lost, the IRS will be looking to you to provide that information.
  9. If you are looking for a new invoice factoring company, ask for references.  Prepare questions and explore the relationships as much as possible.
  10. As part of the factoring relationship, your factor will notify your clients about the change of the remittance address. Many companies panic and fear this process because they do not want their customers to know they are factoring receivables. However, use the standard remittance notifications as a positive. Take the opportunity to sell your services or products. This is an excellent chance to explain to your customers that you have received new funding, which will help you to continue to grow and continue to provide excellent service.
  11. Watch your aging receivables carefully and keep after your collections. Time is definitely money in factoring: the faster your collections come in and get posted, the lower your invoice factoring fees will be over time.

Do you need more information about factoring receivables?

Find even more tips for factoring receivables on the MP Star Financial website. Ready to begin factoring? Contact MP Star Financial today at 1-800-833-3765, ext. 150 or fill out your invoice factoring application online now.

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