11 questions to ask a factoring company before you sign.

1. How is the fee calculated, and what happens if my customer pays late?

The rate you're quoted is usually not the whole cost. What you pay depends on how long the invoice stays unpaid, and late payments can add fees.

At 1st Commercial Credit: rates from 0.69% to 1.59% are a tiered price for qualified clients. The actual rate depends on how long the invoice stays unpaid, the advance, the industry, your customer's credit, the invoice size, your volume and any minimum volume commitment. Its average client pays about 2.25%.

2. How much do you advance, and is there a reserve?

The advance is what you get today. The reserve is what's held back until your customer pays, so a slow customer keeps your reserve waiting longer.

At 1st Commercial Credit: advances are typically between 75% and 98% of the invoice, depending on the industry. In trucking, it's 100% with no reserve, minus the fee.

3. Is there a monthly minimum or a volume commitment?

A minimum you don't reach can cost you money in a slow month.

At 1st Commercial Credit: some programs, like the one for security guard companies, have no monthly minimums. Its pricing lists minimum volume commitments among the factors that set the rate, so ask how it applies to you.

4. Is it recourse or non-recourse, and what exactly does non-recourse cover?

Non-recourse usually covers only a customer that becomes insolvent. A disputed invoice comes back to you either way.

At 1st Commercial Credit: non-recourse doesn't apply to invoices your customer disputes. More in the guide recourse vs non-recourse.

5. What triggers a chargeback, and after how many days?

Disputes and short payments are the most common losses in factoring. You want to know exactly when an invoice comes back to you.

At 1st Commercial Credit: in recourse factoring, after an agreed period you buy back or replace the unpaid invoice. Its guide says that period is usually 60 to 90 days. Ask for the exact number in your contract.

6. Do I have to factor all my invoices and customers?

Some factoring companies require all your payments to go through them.

At 1st Commercial Credit: factoring can be selective. You choose which customers and which invoices, or only part of a large invoice, as long as it isn't a one-time deal.

7. Who will contact my customers, and how?

Your customer relationships are worth more than any invoice.

At 1st Commercial Credit: your customer receives a one-time notice of assignment telling it where to pay, and the invoice shows the payment address. It isn't a collection agency and won't harass your customers. If a customer asks, you can tell it you chose a company to manage and finance your receivables.

8. How fast is the first funding, and then each invoice?

The first funding always takes longer than the ones after it.

At 1st Commercial Credit: most programs set up the account in 3 to 5 days, and its FAQ says the first funding can take 3 to 10 business days after the signed agreement. Sending invoices together with the signed contract speeds it up. After that, invoices are funded within 24 hours of verification.

9. What other fees are there besides the rate?

Setup, facility, audit or per-invoice fees add up fast.

At 1st Commercial Credit: its pages state no upfront, facility or audit fees, and several programs have no invoice minimum fees. Ask for the full list anyway.

10. What happens with my bank loan or a tax lien?

If a lender has a lien on your receivables, it has to be resolved before factoring starts.

At 1st Commercial Credit: it asks the bank to subordinate its lien (some banks agree, others don't), or pays off the loan when there are enough receivables. Back taxes are handled case by case. With a bank term loan, second position works without subordination.

11. Can I have every cost in writing before I sign?

If a factoring company won't put it in writing, that's your answer.

With me: before you sign, I walk you through every cost, line by line, in writing, in English or Spanish.