There are two important elements in an effective invoice factoring relationship, they are cost and process.
Depending on how the rate is structured, there may be negligible difference in the net sum of financing costs between a prime plus structure and straight discount normally associated with factoring receivables. As discussed at length in an earlier post, the prime plus model involves an ongoing monthly service charge and then an added “funds in use” interest charge on the outstanding balance of unpaid invoices. The discount fee model is a simple percentage fee for each invoice submitted for factoring.
Because the prime plus model, usually associated with Asset Based Lending and larger volumes (north of on million dollars a month in new billings,) has a hefty origination fee and also typically a due diligence up front fee – when put together to create the “all in” financing charge, the cost differential to a straight discount model may be inconsequential. Another component that drives this calculation is the ability to pick and choose which invoices you want to factor in the discount model vs factoring everything in the prime plus model.
A more important consideration is the daily working relationship you have with your lender. On one hand you might have a large corporation with layers of bureaucracy making a decision time consuming and frustrating where one department is unaware of what another part of the company is doing. Underwriting and credit analysis is done in back room parts of the company and then fed back to account managers. Of course these operations can be effective, but for firms that have wrinkles in their business model the challenge can be to get the decision you need settled quickly.
CCA on the other hand moves swiftly and has no hidden layers of decision makers. Usually a quick phone call or email will immediately solve any problem that may arise during the course of the funding. You will have everything you should expect in a smooth transaction so you will not encounter added work having to run down problems and issues. Having a relationship with a factoring company who knows your business and can work seamlessly with its operations is an important qualifier when securing working capital for your future growth.