Why Would I Need to Switch Factoring Companies?

Invoice factoring can be very helpful to many different businesses looking for funding and increased cash flow. However, what happens if you choose a factoring company and you are not happy with your results? Some factors may not be a good fit for specific companies or industries or your factoring company may have simply over-promised and under-delivered. How do you begin the process of switching factors and how do you make sure you choose a factoring company that will be a better fit?

 

Reasons to Switch Factoring Companies

When businesses come to UC Factors with the intention of switching from their current company, there are typically five areas of concern that they bring up. These areas include:

  • Cost of service: Companies are looking for better factoring rates or better pricing fees charged by the factoring company for various services not covered under the factoring rate. They have done their research or are currently performing research to determine if another factor would be able to provide them with a better cost of service.

  • Customer service personalities: Companies are not happy with the current level of customer service they are receiving from their factoring company. In these instances, they may have a personality clash with the person who is handling their account or they may have received complaints from their customers about communication from the factoring company.

  • Speed of service: Companies are looking for a faster response time when addressing their needs. They may also be looking for increased speed for receiving funding from submitted invoices and increased speed for credit checks for their customers to begin factoring their invoices.

  • Credit Extension and Increases: Companies could also be looking for increased credit extension for one or more of their customers. They may have also taken on a new customer and their current factor can't approve the new customer. Different factoring companies have varying policies for this, so investigating your options could provide you with a company who will offer increased credit extension.

  • Quality of service: Differing from personality complaints, these companies are looking for a factor who will provide an overall higher quality of service. While many factors charge low initial fees, they also are not providing the level of service companies are looking for, thus the reason for the switch. This could include an increased effort for invoice collections, better understanding of invoice procedures and supporting documents for their specific industry, understanding and communicating regarding certain collection problems instead of overreactions, and an overall feeling of receiving the quality of service they were promised during contract negotiations.

 

At UC Factors, when a company comes to us asking about switching factoring companies, we like to take the time to determine what the problem is they are trying to solve with the switch. We want to make sure that if they do switch, they will be content with the service they are receiving from their new factor.

We try to make them aware of the steps they must take and the time associated with switching factoring companies. We also like to make sure that they are aware of any additional costs, especially if they might be looking at a rate increase by switching.

 

How to Switch Factoring Companies

If you are looking to switch factors based on one or more of the reasons listed above, you probably have a few questions about the process of switching.

The main concerns we typically see from companies looking to change factors are:

  • How long will it take
  • How much will it cost
  • What is the procedure
  • How will their customers react

While the answers to these questions, specifically timing and cost, often depend on your own contract with your current factor, there are three basic steps a company should take when considering switching factors.

  1. First, you should review your current factoring contract, especially the cancellation terms. These terms will let you know what the cost of cancellation will be for your current factor and provide you with a sense of timing (how much notice you’re required to give, etc.).

  2. You’ll also want to find a new factoring company that has a factoring program and terms that are satisfactory and meet all your needs. You’ll need to send in an application to the new company and follow the steps necessary for approval.

  3. Finally, you'll need to make your current customers aware that you will be making the switch to a different factoring company. While your new factor may reach out to your customers to verify any outstanding invoices, it creates a better customer experience if they hear it from you first and have the opportunity to voice any objections before the switch. This is especially necessary if one of the reasons for your switch was your current factor mistreating or mishandling communication with your customers.

 

Conclusion

Switching factoring companies may be the best move for your business if you are paying too much or receiving poor or inadequate service. However, it does take time and there are costs associated with switching.

We always recommend to companies that are interested in switching to weigh the pros and cons of staying with your current company. If you are receiving excellent rates but are struggling to mesh well with your account manager, try taking steps to fix the situation instead of moving on.

However, if you performed your research, are aware of the timing, steps, and costs associated with switching factors, and can obtain better factoring rates, then we would recommend the switch!

 


If you are looking at switching factoring companies, it is important that your new factor will be able to meet all you needs. Choosing the right factor will make all the difference for your factoring experience. Learn how to choose the right factor for your business here:

Free PDF Download: How Do I Choose a Factoring Company? 

 

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