Authored by Zach Humm
Whether you’ve outgrown your current factoring company or you simply want to take advantage of better terms elsewhere, switching factoring companies can be an important step when growing your business. There are contracts to maneuver around, timing considerations to take into account, and open invoices to corral.
We’ll help you learn how to switch factoring companies seamlessly so you can focus on moving your business forward.
Why Switch Factoring Companies?
Factoring can be a vital tool for freeing up cash flow. But you need a factoring company that works with you, not against you. If your current factoring company isn’t meeting your needs, it’s reasonable to move on to another firm.
Here are several reasons you might consider making the leap:
- Costly fees: Hidden fees and surprise charges are taking a big bite out of your profits.
- Poor service: Your current company is slow to respond to you.
- Slow or limited funding: You can’t scale your business because you can’t get funds fast enough, or you’re limited in how much you can access.
If your current factoring company is holding your business back, here’s how to switch.
How to Switch Factoring Companies
When you’re ready to switch factoring companies, follow these steps.
Review Your Current Contract
You need to know what your current contract states, including whether there are early termination penalties for exiting the partnership early.
Evaluate New Factoring Partners
Figure out which company you’d like to work with next. A factoring broker like Factor Finders can streamline this part of the process for you, helping to narrow down your options to companies that understand your industry and offer better terms that what you’re working with now.
Get Your Paperwork in Order
Next, make sure you have all of your documents necessary for switching: invoice copies, customer contracts, financial agreements, and so on. The next factoring company will review this information during the process of negotiating terms.
Terminate Your Current Agreement
Once you have selected a new factoring company to work with, notify your current factoring company of your intent to exit the relationship. It’s best to get this notice in writing and confirm the exit date (or buyout date) with the factoring company. Depending on the company, an email may be sufficient or you may need to go to greater lengths (signing and mailing your notice, for example).
Transition Your Funding
The best way to avoid gaps in your cash flow is to ensure your invoices are transitioned smoothly from the old company to the new company. Your old factoring company may need to provide other information to the new company as well, such as any invoice aging reports or a letter of release. When the transition is complete, new invoices will go to your new factoring company under the terms of your agreement.
Use a Factoring Broker for a Smoother Transition
Although you can certainly switch factoring companies on your own, a factoring broker can streamline the process for you. For example, Factor Finders has a wide network of factoring companies to tap into to find the right fit for your needs. We also provide expert guidance when it comes to factoring agreements and switching providers, so you don’t have to navigate the process alone.
The Bottom Line
Working with a factoring company is supposed to improve your cash flow and lend flexibility to your business. If your current factoring company isn’t meeting your needs, 2024 might be the right time to switch to someone new – especially with today’s fluctuating interest rates and economic uncertainty.
If you need help, a factoring broker can help you weigh your options and narrow your search to factoring companies that understand your industry, plus provide guidance during the switch. Contact us to connect with a new factoring company that fits your business going forward.