Cash flow problems can lead businesses to explore a wide range of solutions. When an enterprise decides to sell its own accounts receivable to a factoring agent to gain rapid access to money, consideration of several key factors should occur. Companies endeavoring to select the best factoring agents for their specific needs should examine the tangible experience, industry contacts, historical performance, operational style, and fee structure of any prospective service provider.
A critical attribute common to the best factoring agents is a lengthy track record marked by continuous success in receivables collection. Highly skilled factoring agents will be able to accurately analyze a company's accounts receivable and determine whether they are confident in their own ability to secure payment on them. An important component of this ability is a factoring agent's degree of familiarity with the account seller's industry sector. Having intimate knowledge of the types of customers with outstanding balances greatly aids in tailoring effective collection strategies and balance recoveries.
Yet another significant factor in identifying the best factoring agents is the precise techniques and strategies to be employed when attempting to collect on the seller's accounts payable. The agent selected will inevitably come into direct contact with the selling company's clients and, therefore, the style and tone taken during the collection process is a relevant consideration. Any prospective factoring agent should have a reputation for professionalism and courtesy when dealing with account holders. Otherwise, their approach may serve only to alienate and offend customers and cause them to take their business elsewhere in the future, resulting in harm to the account seller's business.
To gain insight into prospective factoring agents, it is wise to solicit recommendations and references from trusted industry colleagues. This can help provide a glimpse of how the potential relationship with the factoring agent is likely to function and is a useful way to determine whether the seller's needs are a good match for the philosophy and structure of the agent. An easy, workable relationship between the seller of accounts receivable and the factoring agent is a great predictor of success.
Last, but not least, any company attempting to differentiate among several factoring agents must conduct a comparison of fee structures, term contract requirements, and policies relating to the return of reserve amounts. Businesses must carefully balance the costs assessed by the factoring agent in collecting on accounts against the potential benefits offered by quick access to funds. Neglecting to perform this basic analysis renders the fundamental purpose of factoring essentially moot.