Inc. staff

Factors to Consider

Four key questions to ask before signing a factoring contract:

 

  2. 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%.

  3. 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.

  4. 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.

  5. 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.