Factoring is a standard financial solution dating back to the 1400s that allows third-party corporations to buy companies’ invoices. They do this to provide companies with advances on their cash, and in return, the factoring corporations receive a percentage of the invoices they pay out.

If you’re new to the factoring concept, breathe. It is simpler than it may seem. Of course, with anything new, there is a learning curve. Be sure to keep these common mistakes in mind when entering into the world of factoring.

Forgetting to Forward Payments

It is not uncommon for companies that have no experience with factoring to forget to forward their invoices to the factoring company. The shipper will pay the trucking company for their services; however, the factor has most likely already paid the trucking company, and therefore, the payment needs to be forwarded to the factoring corporation.

Chasing Bad Customers

Bad customers usually equal debt on your end. If the customer doesn’t pay, it can put your company in the red, risking everything you’ve worked hard for. A benefit that some factoring companies provide is background checks on all customers before accepting to factor their account. By doing this, you reduce the risk of loss for your company.

Not Including Factoring into Your Quotes

To account for the fees you will pay to the factoring company, you may need to overestimate when providing quotes for your customers. Factoring fees can range anywhere from 5% – 20% of your receivables. If you don’t remember that a percentage of your invoice will go to someone else, you may find yourself short of cash at the end of the month. This lack of income might mean you may not be able to pay your employees or add more business.

Choosing the Wrong Type of Factoring

Make sure you are choosing your factors wisely. As mentioned, factors can take a large percentage of your receivables, but often, those that do are the ones who have great reputations and provide excellent service with backend support and customer accountability. The factors that have low fees may not be the most trustworthy companies to work with. It is crucial that you vet multiple factoring companies before choosing the one that would be the best fit for your company.

If you are looking for a reputable factor with long-standing relations with their clients, CoreFund Capital is ready to work with you. Call us today at (800) 405-5464 to start putting your cash in your account faster.

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