Not every factoring company works the same way. Rates, service, who carries the risk and how long the contract runs can all differ a lot. If you only compare on price, you’ll often miss the bigger picture.
Want to compare factoring companies properly? These five practical tips will help you make a choice that fits your financing needs and your growth plans.
Not sure yet whether factoring is right for you? Read 8 reasons SMEs turn to factoring first.
1. Check whether the factoring company is reliable
The first step is simple, but it matters: know who you’re dealing with. Banks are generally reliable. But many factoring companies are independent players. So look closely at their reputation and financial strength.
Reputation
In Belgium, there’s no official quality label or licence for factoring. So look at how the company is seen in the market. Read online reviews, check their social media and talk to other business owners.
At Nextfactor, we only work with partners we know personally and have had good experiences with. Because we work with a wide range of clients, we can often share first-hand references.
Financial strength
A reliable factoring company is financially healthy. Look for signs such as:
- strong, stable annual results
- open communication about its finances
- being part of a solid group
- many years of experience in the sector
Nextfactor only works with companies that have proven financially strong and are built to last.
2. Compare the costs and how open the provider is about them
The cost of factoring varies a lot from one provider to the next. And comparing them is often harder than it looks.
American-style factoring companies usually charge one fixed percentage: the factoring fee. It covers all costs, including the cost of financing.
Traditional factoring companies charge a factoring fee plus interest on the amount you’ve been advanced.
Factor fee
With American-style factoring, the fee is usually between 1% and 5% of the invoice amount. Check what you get for it. Does the company pay out 70% or 100% of your invoice straight away?
With traditional factoring, the fee is often lower, but interest comes on top.
Penalties and extra charges
Some providers charge extra interest if your customers pay late. Others charge a penalty if you don’t reach the agreed annual turnover. So read the terms carefully.
Hidden costs
Always ask directly about extra costs, such as subscription fees, admin fees or fees for credit limits. Not every provider is equally open about them.
At Nextfactor, we help you read a price proposal correctly.
3. Read the small print of the factoring agreement
No two factoring agreements are the same. So check exactly what’s included in the service.
Key points to look at:
- Advance or retention. Some companies pay out 100% of the invoice. Others hold back 10% to 30% until your customer has paid.
- Credit control. Do you want to chase your customers yourself, or would you rather outsource it?
- Credit risk. Does the company take over the risk of non-payment? Then you’re fully protected against customers who don’t pay. Do you mainly have reliable customers or small invoices? Then it can be cheaper not to transfer the credit risk. The factoring fee is then a little lower too.
Read more in Factoring and credit insurance: can you combine them?
4. Look at flexibility and tailored solutions
Every business is different. A good factoring company understands that and offers flexible solutions. Look at:
- Contract length and notice period. Can you start quickly and stop easily?
- Minimum requirements. Some providers only work with businesses that have a minimum turnover or a minimum number of invoices.
- Application process. How complicated is it to apply? The simpler it is, the sooner you can start.
- Tailored service. Is the company willing to adapt its service to your needs?
Want to see how big the difference can be? Read our client story: From 40% to 100% financing at Worksgroup.
5. Trust your gut
Figures and terms tell you a lot. Your gut tells you the rest. Contact the factoring company and set up a call, a video call or a meeting. That way, you get to know the people behind the company. And you’ll quickly sense whether they really want to work with you.
At Nextfactor, we always start with an introductory meeting. How someone communicates and answers your questions often shows straight away whether there’s a good fit.
Frequently asked questions about comparing factoring companies
Does a factoring company need a licence in Belgium?
No. In Belgium, there’s no official quality label or licence for factoring. That’s why it’s all the more important to check a company’s reputation and financial health.
What’s the difference between American-style and traditional factoring?
With American-style factoring, you pay one fixed percentage that covers all costs. With traditional factoring, you pay a factoring fee plus interest on the amount you’ve been advanced.
Can I easily end a factoring contract?
That depends on the contract length and the notice period. They vary a lot between providers. Always ask before you sign.
Got another question? See all our FAQs.
Comparing factoring companies: a summary
Want to compare factoring companies yourself? Use these five tips:
- Check whether the factoring company is reliable.
- Compare the costs and how open the provider is about them.
- Read the small print of the factoring agreement.
- Look at flexibility and tailored solutions.
- Trust your gut.
Setting up factoring takes time and attention, but it pays off. If you compare on reliability, costs, terms, flexibility and gut feeling, you’ll choose the factoring partner that truly fits your business.
At Nextfactor, we guide you step by step. We know the market and what works. That way, we help you find the factoring company that suits your needs. See how we work or get in touch.
About the author
Peter Hendrix is the founder of Nextfactor. He has worked in factoring for around thirty years. He knows how banks and fintechs work and how their offers differ. At Nextfactor, he helps SMEs find the financing solution that truly fits them.