Reasons For Switching Factoring Companies

Every so often, we get a call from a prospect who wants to switch factoring companies. This article provides our perspective on the most common reasons that companies choose to change providers.

However, first we’d like to emphasize one very important point: changing factoring companies is difficult and risky. This change can impact your business and your customers. You should switch factoring companies only after carefully evaluating alternatives, since you want to make sure you are not trading one problem for another. Also, if you are looking to change providers, our article how to find the best factoring company for your business has some tips on finding the right company.

Although this list is not exhaustive, the most common reasons that customers look for a new factoring company are as follows:

  • Customer Credits: Clients seeking to switch providers for this reason usually complain that their current provider is either not willing to factor one of their customers or has limited the amount of available credit to an important customer. Obviously, either of these limitations has important financial implications, which prompts the request for a change. The problem is that most factoring companies use the same sources to make their credit decisions. More often than not, if one factoring company is not willing to work with one of your customers, other companies won’t want to factor those invoices either. However, there are exceptions, and there are companies that are willing to risk factoring some invoices with less than stellar credit if they are combined with invoices from prime credit customers.
  • Pricing Issues: It’s very common for clients to call other factoring providers to see if they can get a lower price. Having said that, it’s also very common for these same clients to take a new proposal to their current factoring company and use it to negotiate lower rates. Ultimately, they usually end up staying with their current provider – for a lower price. We’ll add that if your current provider is doing a good job at an acceptable price, you should seriously consider staying with them in order to avoid the challenges and hassles of switching providers.
  • Service Issues: A service issue, meaning that the factor is not treating you or your customers correctly, is another reason companies want to change providers. In our view, this issue warrants serious consideration because a factor providing poor service can put your business at risk. This situation is probably one of the few instances in which staying with your current factor can be riskier than changing.

Experience has shown us that companies citing customer credits or pricing as the reason they want to change providers almost always stay with their current provider. Companies that cite service issues as the reason for desiring change, however, often do switch providers.

In the next article, we discuss things that you should be aware of if you do decide to switch factoring providers.

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Disclaimer: This article does not provide legal or financial advice. Seek advice from a professional if you need it.