Factors to Consider
Four key questions to ask before signing a factoring contract:
- How much of my receivables will you withhold? Most factors set aside 20% of receivables against deadbeat invoices. If your customers have good credit, you could reduce that to 10% or 15%.
- Will I be fined for breaking my contract? Shop around for a factor that does not charge early termination fees. Or, consider signing a six-month or one-year deal.
- Are there any hidden fees? Some factors require clients to pay fees related to, say, wire transfers and administrative costs, so get the complete picture up front.
- Can I increase my credit limit down the road? If you plan to grow fast, choose a factor that's willing to increase your line of credit before your contract expires.