How To Choose The Right Debtor Financing Company

For many business owners these days, debtor financing has become an essential tool for obtaining funds during financial problems. It is a credit extended by some funding sources to their established customers to let them run the business and pay later. Anytime a client is slow to pay the money owed to their business, growth cannot happen. Usually, businesses offer net 30-day terms to their clients, but when things go wrong, they can’t afford to wait around. Seeking funds from debtor financing companies through invoice factoring and discounting becomes the only way out of this situation.

Unlike conventional loans, debtor financing relies on the cash flow of the business or the future invoice payment. A large amount of capital can be raised through this method. However, the issue here is to find the right type of debtor finance company for your type of business. With that being said, some of the criteria for evaluating the right companies are given below.

Number of Operational Years

Choosing among the many possible debtor financing companies may be as simple as going with the only source of funding that is available to your business to as complex as carefully selecting one from a list of hundred companies. But at least to start with, you should know which company has been in the business long enough to consider doing business with. The base number here is five years. This will give you an idea about its reputation as well as your chances of obtaining the needed funds. 

Field Of Expertise

The reason you need financing will come to play here. If it is for a situation that a specific debtor financing company is expert in handling, you are likely to be on their favorable list. A bank is unlikely to finance if it only serves large businesses and yours is a start-up. But a credit union will be able to help your business if most of its clients are small business owners. And remember that, thoroughness is the key to making a useful calculation of how much funding you will need – which financier is best suited for a partnership.

Quality of Service

There are many places that you can look for financing for your growing business. However, the quality of service matters. Working with a company that offers great rates and flexible terms but lack a good work ethic is a recipe for failure. And every debtor financing company you approach will tell you that they have great service. The best way to know the truth is to ask some of their clients. Asking for referrals is a must if you want to safeguard your interest, but make sure to do it after you submit your application and receive a proposal.

Financing Ability

Very few businesses worry about the financier’s ability to fund. If you are not choosing a financially sound company, sooner or later, you will foresee or find yourself in a situation where the financier lacks the cash to pay for your outstanding bills. This doesn’t mean your business is a failure; it simply means you failed to choose the right financier. So, select the financing company that can pay you today and pays through the future. Make sure they are backed by sufficient funding as well. Doing so, you will eliminate the hassle of finding another financier or prevent the danger of closing your business. If one company is insufficiently funded, turn to another company. This company may be more interested in keeping you as a business partner, and they probably are affiliated with many financing sources as well.

Matching Requirements

As tricky as it can be to obtain financing from a debtor financing company, finding the right company to do business with can be even tougher. If you can find the financier for your type of business, you are almost there. But most financiers have specific size preferences. Those who serve large businesses don’t deal with small businesses and entrepreneurs. Similarly, financiers meant for start-ups hesitate to lend a large amount of money. Knowing the size of the average client of a particular debtor financing company is the best place to start.

Comparison Shopping

Look at the pricing method of the debtor financing company and the difference may be compelling. One company may offer a particular service for free while another company may include it as optional for a fee. In general, every company has its own fee structure. Most of them have an initial service fee charged at the beginning of the service setup, and then there is a discount rate that is charged on a monthly or some other basis. Comparing these fees can help you in making an informed decision. One simple way is to compare proposals for a 30-day invoice. Make sure to read all fine prints before zeroing in on one company.