Posted on 26.09.2019, 11:23
What should I keep in regard, when I choose between financing options? We recommended that you start by asking your factoring company the following
1. How will you handle the relationship with my clients?
When you sell your invoice it means that you hand over the administrative processing to the factoring company that has bought the invoice. Make sure they maintain the relations in the same manner as you care for your clients. Contacts frequently occurs both by email and over the phone so it is vital that that you feel comfortable with the factoring company taking over this responsibility.
It´s crucial to scrutinize the terms of the agreement. Are there any start-up fees, yearly or monthly fees? Any other ”hidden costs” included in the agreement that have not been mentioned? Will you always receive payments of the same % of the invoice amount regardless of which customer the invoice concerns? Collect this information and summarize it, in order to compare the factoring companies. Believe me, there will be considerable variations!
3. Am I committing to something?
Some factoring companies apply a fixed subscription period of one or more years, which can make leaving an agreement in case of dissatisfaction difficult. It is therefore preferable to choose a factoring company that does not require fixed subscription periods. That gives you flexibility in deciding the number of invoices you wish to sell. Some factoring companies may also require a minimum number of invoices each month, which is not optimal since there may be variation in how frequently you invoice your clients. Evaluate thoroughly and make sure that the costs you will be charged above the % of the invoice total are minimal.
4. What are my requirements for becoming your client?
All factoring companies have their own credit policy, however they are obliged to follow the regulations set out by the Swedish Financial supervisory authority (Finansinspektionen). They will assess your company and its owners to evaluate the risks of a possible agreement. Make sure to ask if you need to stand as guarantor or not when you sell an invoice and that this is clearly stated in the contract.
5. What happens if my client defaults on payment?
Before purchasing an invoice the factoring company will always contact your client in order to receive confirmation of delivery, in order to ensure that the service or goods have been delivered and that the details of the invoice are correct. In case the client does not confirm, the factoring company will not purchase the invoice and the seller (you) will be contacted. If the client does confirm, but then defaults on payment, they will receive a prompt and later a demand for debt collection. If the invoice remains unpaid further actions will depend on if you sold it with or without regress or stood as guarantors. Ask your factoring company what applies in your case.