How to Switch Factoring Companies: A Checklist

A factoring company can allow your organization to cover gaps between service and payment and ensure you have a reliable, steady stream of cash flow for your business. In some cases, though, you may need to make the switch from one factoring company to another. The most common reasons for making a switch include cost and overall quality; learning more about why you might want to make a change and the steps needed to switch from one factor to another can help you make the most of the process.

Why Switch Factoring Companies?

There are several reasons businesses make the decision to switch from one factoring company to another, including:

  • Service: Client satisfaction can trigger a switch from one factor to another; if the client does not feel their needs are being addressed by the factoring company, they may seek a more responsive provider.
  • High Customer Concentration: Many factoring companies don't like working with accounts that have high customer concentration. If this is the case, a business may look for a factor that is more accommodating.
  • Customer Credit Extensions: Factors approve credit for their client's customers; if the current factor can’t cover one or more of the client’s end customers, they may seek help elsewhere. 
  • They value service over cost: A client that wants a more concierge level service, with plenty of interaction and service may not be happy with a straightforward, no-frills provider. In some cases, the client will move on to a more service-oriented factor, even if the cost is higher.

 

Switching Factoring Companies – A Checklist

If you are planning to make the switch from one factor to another, then the following checklist will help ensure you have everything covered and that the process goes as smoothly as possible:

  1. Review your existing contract: You have a contract with your current factor; this document will outline what your obligations are and any penalties that will apply if you cancel early. In some cases, it is worth waiting out a few months to avoid fees; in others, it is worth paying a termination fee to move on.

  2. Research and select a new factor: Determine what features are most important to you and what you’re missing in your current factor. Review your options and select a factor that better matches your needs. You should decide on your new factor before you terminate your existing one and be aware of costs, service fees, turnaround times and more.

  3. Notify your existing factor of the pending change: You need to let your old factor know that you are moving on. This will allow them to begin preparing your account for the switch and allow them to start calculating any buyout costs or fees that will be needed.

  4. Sign with your new factor: Once you have chosen a new factor you’ll need to apply and qualify with them; while you will sign a new contract during this time, it will not actually be effective until your old contract is completely satisfied and all requirements are met.

  5. Grant permission to share details: Your new factor needs permission to view your existing accounts that are with the original factor. You’ll need to write a letter of permission allowing your original factor to share these confidential details with your new factor.

  6. Let your customers know a change is coming: You'll need to provide your customers with the start date and any new payment details they will need.

  7. Allow time for the factors to work together and create a buyout agreement: This figure represents the amount needed to fully close out your account and transfer it. Review the buyout details when they are available.

  8. Wait for the switch to occur: Your original factor will stop accepting and processing invoices and the new one will begin. Your old factor will redirect any payments received after this date to your new factor for processing.

The process to switch from one factor to another is somewhat time-consuming, because of the details and steps involved. Making sure you choose the right factor in the first place or thoroughly researching the factor you are thinking of switching to can cut down on the number of times you'll need to go through this process. It will also ensure you get the best possible service and remain happy with the provider you have chosen.

 

Conclusion

Typically, factor hopping or continually switching from factor to factor before your contract has expired is frowned upon so we recommend you take the time to contemplate the reasons why you are unhappy with your current factoring company. While some reasons for breaking a contract and switching are valid, others could be worked out until your contract is up and you can freely switch companies.

However, if you are truly not happy with your current factor and need to make a switch -- or need to work with a factor for the first time, we can help. Our conscientious, service-driven team knows how important your factoring company is to your success and works hard to ensure you have everything you need for your business to thrive. Contact us today to see what our team of experts can do for you.

 


If you are considering switching to a new factor for any of the above reasons, make sure you check off everything on our list to ensure a smooth transition. Download your copy of our checklist for Switching Factoring Companies here:

Get your free factor switch checklist