Do you know what to pay attention to when it comes to working with a factoring company and understanding their contract? Primary Funding’s Jason Severson and Greg Salomon sat down for a beer to tell you about the two most overlooked parts of a factoring contract!
While you want to pay attention to all aspects of the contract, there are two parts of contracts that are often overlooked. Paying attention to these two details can save you a lot in fees and penalties.
First of all, not all factoring contracts are created equal, and it often comes down to the contract details. And the quality of that contract is what often separates the great factoring companies from the good.
The first most overlooked detail in factoring contracts is the Prepayment Penalty.
You want to understand if there is a prepayment penalty, what it is, and how long the contract locks you in.
There are some companies that take the approach of trying to keep clients locked into the contract, whether or not it makes sense for the business.
The better factoring companies have little, or no prepayment penalty. This is what you’re looking for. They won’t penalize you for growing your business and no longer needing them. These factoring companies are looking out for what is best for the business, not for themselves.
Factoring companies, like Primary Funding, aren’t trying to lock you into a contract. Instead, we understand that businesses need to graduate on to more traditional financing when they are ready, and we don’t want to hold you back!
The Second Overlooked Detail in Factoring Contracts is the Number of Days to Post.
To understand this detail, you need to understand what is meant by Days to Post.
When companies are financing, or factoring invoices, the payments on those invoices get directed to the factoring company. Some factoring companies hold on to those payments for X number of days (as outlined in your contract).
This delay to post the payment to the account might not sound like a big deal. If the factoring company is holding onto the payment 3, 4, or even 5 days before they post the payments against the invoice and account it is paying off, it can add up.
That delay stretches out the time the invoices are outstanding. Similar to how interest works, that delay increases your fees.
Some factoring companies, like Primary Funding, post the payment when received it and the fees stop then.
Pay Attention to Your Contracts
Many B2B businesses rely on factoring at some point for their growth and future success. There are good factoring companies you can work with that are looking out for your company. There are others that are focused on their own growth and bottom line. These factoring companies often operate with little or no integrity and that comes across most clearly in the contracts.
It is critical that you understand the impact of every aspect of your contract! And if you ’re able to avoid costly fees and penalties, that saves you money in the long run. So then you can come and join us for a beer!