Switching to a new factoring company can yield many benefits for you and your business. With that being said, you’ll want to be as thorough as you can be before making any significant decisions as they will surely impact your business. Given this, it’s important to explore the most common reasons that you may have for switching to a new company. To help simplify things, we thought it would be useful to compile the most common reasons why a business may want to switch to a different invoice factoring company. If this is something that you want to learn more about, read on as we discuss whether or not you should consider switching to a new factoring company.
Length of Your Agreement
The first thing you’ll want to consider is the length of the agreement. One year is the most common term length for an invoice factoring agreement; two or even three years exist with some factoring companies. The shorter the term, the more flexibility you’ll be afforded. If flexibility is something that you value, then it would be wise to avoid factoring companies that lock you in for long-term deals. Ideally, it would be best to never sign a contract longer than one year if you want true flexibility. Granted, there may be exceptions to this but there are very few reasons to sign long-term agreements with factoring companies.
Auto-Renewals
One of the most important clauses in a factoring agreement is the length of the agreement (term). Many contracts auto-renew, meaning that they are extended without notice. For example, if your two-year term expires in June of 2021 and you miss the deadline to notify the company, then the contract automatically extends itself for another two years, or until June of 2023 at the latest.
Know when your contract will automatically be renewed. Typically, it’s the date that the contract was signed, but it could be a few months later. Mark the date on your calendar, and check in with your factor to go over your options. By not giving notice, you lock yourself into another contract and forfeit any chance to negotiate a better deal. If the current company you work with comes with unfavorable auto-renewal conditions, then it may be best to move on.
Early Termination Fees
Setting up a relationship between a company and a factoring company may take time and money at the beginning of the contract, so an early termination fee is needed to offset these costs. A simple early termination fee comes into play if you leave the contract early. It’s simply the minimum monthly percentage multiplied by the number of months left on the contract. If the fee is too high for your business to cover, it would be best to work with a different company.
Conclusion
We hope this article proves to be useful when it comes to helping you make the best decision possible for your business. While switching to a new factoring company may benefit your business, be sure to keep everything that we’ve discussed in mind so that you can effectively weigh your options.
Porter Capital provides working capital solutions to businesses in a variety of industries. As a direct lender and invoice factoring company located in Alabama, Georgia, and Minnesota, we have provided over $6 billion in funding since inception. Apply now!
