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• 24 Oct

  How To Pick A Factoring Company In The UK

  

  Choosing the right factoring company is not like selecting a mortgage provider. With a business loan, once you have the money it's just a case of making your payments - so often people make the choice based on the lowest pricing. With factoring, there is a service provided by the funder. Hence, it is not such a simple decision. A potential user will also need to consider the service they will receive and the product offered.

  REQUEST A FACTORING QUOTE

  How To Pick A Factoring Company

  Picking a factoring company requires that you consider a range of different aspects to make a balanced decision. There are several aspects that should drive your decision.

  Things To Consider When Choosing A Factor

  When choosing a factor, these are some of the aspects that you should think about

  • Pricing
  • Risk appetite
  • Funding levels
  • Product consideration
  • Service levels

  Below we explore each of these in turn.

  Pricing

  This is the most obvious part of any facility comparison - how much will it cost? We would suggest that you use your financial projections to try and work out exactly what the costs will be for each quote that you have. For example, if you have service charge quotes of 1%, 2% and 3% (these are for demonstration purposes only) - you would multiply them by your projected turnover in order to work out the service charge aspect. You may also need to consider any minimum fees that might come into force.

  You may also have a discount element to the quotes and perhaps additional charges (although this is not always the case). If that applies, you will need to estimate those fees based on your anticipated facility usage. See our article about calculating discount charges.

  Once you have considered all aspects of the costs on a comparable basis, you can compare the total expected costs for each facility. Please take a look at our pricing research that shares some insights into how the pricing works.

  Risk Appetite

  Different factors will take different approaches to risk. In some cases, a factor may not want to offer a business a facility yet another will. This can also be reflected in their pricing, not all funders will quote similar rates for the same company.

  Funding Levels

  The funding levels will determine how much money you raise from your facility. Aspects such as restrictions on prime debtors, credit limits and prepayment percentages will make a big difference to the amount that you can draw. There is no point in picking the cheapest facility if it won't release the amount of funding that you need. Our invoice funding guide has more information on how to compare these financing levels.

  Product Considerations

  The product that you choose will drive the benefits that you receive. For example, invoice discounting will provide prepayments against invoices without any credit control. If you want credit control you need factoring. There are also a number of product add-ons that are available, and each of these could provide additional benefits to be considered.

  Service Levels

  With these types of funding, the financier will be assisting or completely outsourcing your credit control. This is a service that can greatly benefit your business if used correctly. However, not all service levels are the same. You could look at reviews from other customers to get an idea of how the service compares or speak to a broker who has experience with the different offerings.

  Other Aspects To Think About When Making A Decision

  Of course, there are other decision-making aspects to take into consideration. For example, you may get on well with the person you speak to from a particular funder. Alternatively, you might prefer to use a bank-owned financier or one that is smaller and more independent. There are benefits on both sides of the equation. These are just a few of the other aspects that you might want to consider when choosing a factoring company.

  By Glenn Blackman