1. Transparency in rates and fees is important.
Transparency is key in invoice factoring. Make sure the fees and rates are clear. Do your homework and ask lots of questions. Many invoice factoring companies advertise incredibly low factoring rates, but you could get hit by a series of undisclosed fees once you start using the service.
2. Watch out for those penalties!
Some invoice financing companies have hidden penalties, so it’s important to read the fine print and ask a lot of questions in your quest for a factoring company. Some of these penalties are unfair or out of proportion in which case it’s smart to walk away.
3. Don’t get trapped in contracts.
Many traditional factoring companies will try to lock you into long-term contracts. This may be a good deal for you small business if based on terms that clearly would allow you to save on financing costs. But just like any financing contract, read the fine print and ask questions. In some cases, these contracts feature exorbitant cancellation fees. Others require you to submit a minimum number invoices for factoring, which mean you’re paying for financing that you don’t really need.