Authored by Phil Cohen
Choosing the best invoice factoring company requires evaluating pricing, advance rates, industry expertise, contract terms, customer service, and client credit policies.
This guide shows you how to compare factoring providers using objective criteria so you can avoid hidden fees, secure better rates, and ensure the relationship supports your business long-term.
Before You Begin, You’ll Need:
Current invoice volume
A/R aging report
Your clients’ payment terms (Net 30–60)
Average invoice size
Growth expectations
Internal funding needs (payroll, materials, overhead)
How to Choose a Factoring Company: 8 Essential Criteria
1. Evaluate the Advance Rate (80–95%)
Higher advance rates provide stronger upfront liquidity.
Typical ranges:
Staffing agencies: 90–95%
Manufacturing: 85–92%
Freight & logistics: 80–90%
B2B service firms: 85–95%
What to look for:
Transparent formula
Whether your industry qualifies for higher advances
Reserve release timing
2. Compare Factoring Fees and Pricing Structure
Factoring costs vary by volume, client credit, and payment cycles.
Common fee types:
1.5%–4% per 30 days
Tiered rates (rates drop as invoices age)
Flat fees (fixed per invoice)
Volume-based discounts
What to avoid:
Compounded daily fees
Undefined “service charges”
Monthly minimums you can’t meet
3. Choose a Factor Specializing in Your Industry
Industry expertise ensures fewer delays, accurate underwriting, and client-appropriate expectations.
Examples:
Staffing: Weekly payroll → high advances, rapid funding
Manufacturing: Purchase order verification
Transportation: Fuel advances, rate confirmations
Why specialization matters:
Better risk assessment means better pricing and fewer funding interruptions.
4. Review Contract Terms Carefully
Contract terms greatly affect flexibility.
Key contract elements:
Month-to-month vs. annual agreements
Early termination fees
Volume minimums
Recourse vs. non-recourse
Notification requirements
Prefer:
Transparent terms
No long-term lock-ins unless price reduction is meaningful
5. Assess the Technology & Portal Features
Modern factoring platforms provide:
Real-time invoice status
Payment history
Reserve reporting
Credit checks
Document uploads
Why it matters:
Better systems reduce errors, speed up funding, and improve forecasting.
6. Understand the Client Experience
Because clients pay the factoring company, the factor becomes an extension of your accounts receivable process.
Look for:
Professional communication
Light-touch collections
Clear remittance instructions
No aggressive tactics
Red flag:
Factors that pressure your clients may damage business relationships.
7. Compare Customer Service Responsiveness
Funding delays often come from slow provider response times.
Evaluate:
Dedicated account manager
Email/phone support availability
Funding cut-off times
Turnaround speed for approvals
Tip:
Ask for average funding time: 24 hours is standard for strong factors.
8. Check Credit Policies for Your Customers
Factoring approval depends heavily on the creditworthiness of your clients.
Ask the factor:
What credit bureaus they use
How often they update credit data
Whether they provide alerts for declining credit
If they cover credit risk (non-recourse options)
The right credit policy protects you from bad debt.
Common Mistakes to Avoid When Choosing a Factoring Partner
Mistake 1: Choosing the cheapest rate without evaluating service quality
Low rates can hide slow funding or unresponsive support.
Mistake 2: Overlooking contract fine print
Termination fees and volume minimums can become costly.
Mistake 3: Not checking how the factor interacts with your clients
Aggressive collections harm your customer relationships.
Mistake 4: Ignoring reserve and fee timing
Return timing affects actual cash flow.
Next Steps
Gather your invoice volume and customer details
Prepare a list of factors to evaluate
Compare pricing, service, and contract terms using the checklist
Choose 2–3 providers for rate quotes
Select the partner that best fits your industry and growth plans