How to Switch Factoring Companies

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Why You Might Want to Switch Factoring Companies and How to Make the Transition

If your company already uses invoice factoring, you will be familiar with the benefits of this type off-balance-sheet finance. Invoice factoring, also known as accounts receivable financing, speeds up the receipt of cash from sales invoices, provides a reliable cash inflow, and makes cash flow more predictable and, therefore, more manageable.

However, not all factoring companies are equal. And it is not uncommon for businesses to switch factoring companies. But why would you want to change to another factoring company, and what is the process? Here is a complete guide to switching to a new factoring company.

Why Switch Factoring Companies?

There are many reasons why companies decide to switch factoring companies. But the decision to change often comes down to cost. And it is the extra costs buried deep in an indecipherable factoring contract that are often the bone of contention. Following are the most common reasons companies decide it is time to change their factoring company.


Factoring finance fees can vary considerably. And often, the cost is the sole reason for the change. So, once you have decided to change your factoring company, it would be wise to shop around and get quotes from several providers before making the switch.

Hidden Fees

Some factoring companies are not as transparent about cost as they could be. So, businesses get hit with surprise costs after they have signed an agreement. Some factoring companies charge a wire fee for the immediate transfer of funds, for example. And some charge collection fees, credit check fees, and unused credit limit fees. These costs may be perfectly reasonable and valid. Nevertheless, it is crucial that you carefully read the terms and conditions of the agreement and deal with a company that is open about all the costs.

Low Initial Advance

When you factor sales invoices, the factoring company pays a proportion of the invoice value immediately. The remainder is retained until the customer has paid the invoice. The percentage that is initially advanced can vary. And you might feel that your current factoring company holds back an unreasonably high retention amount, in which case, you might want to change the factoring company.

Slow to Pay

The best factoring companies pay the initial advance on invoices within 48 hours. However, some companies take much longer to make payments. And, if you raise a significant number of sales invoices every day, a few days of delay can significantly impact cash flow.

Heavy-Handed Collections

When you factor a sales invoice, ownership of the debt passes to the factoring company. So, it is usually the factoring company that will make the collection phone calls. And, if collection calls are not done in the right way, it can adversely affect the customer relationship.

Slow to Apply Collections

Some factoring companies take several days to apply money collected from customers to outstanding invoices. That delay can affect the finance charge levied, the available credit, and it delays the release of the retention.

Lack of a Good Working Relationship

The relationship with a factoring company needs to be one of a partnership. There will be queries raised on some invoices, for example. And you and the factoring company may need to work together to collect money from delinquent customers. So, you will need to be able to build a good working relationship with your factoring company. If you can’t, dealing with the company can be frustrating and time-consuming.

How Easy is it to Switch Factoring Companies?

The process of switching to a new factoring company is relatively easy. However, there are steps you must take to ensure a smooth transition. And, because the change will affect your customers, it is probably something you would not want to do too often.

Steps Needed to Switch Factoring Companies

Once you have decided to switch factoring companies, you will need to start planning for the change. And, if you follow the following steps, the transition should be smooth and painless.

  1. Review Your Existing Contract

The first thing to do is to review the contract you have with your existing invoice factoring company. In particular, look for clauses related to how long you are obligated to remain with the company. And see if there are any penalty payments for canceling the agreement early. There may also be a specific clause that covers notice periods and the process for canceling the contract.

  1. Select a New Factoring Company

As mentioned above, it is worth taking your time searching for a new factoring company. So, begin your search by identifying what service features are crucial for you. And, of course, look for a company that will offer the level of service that you feel your current provider cannot deliver. Then, investigate the new company carefully to ensure that it will meet your needs. And work with the chosen company to agree on terms and service levels that suit both parties.

Related: 10 Considerations When Selecting the Best Factoring Company for Your Business
  1. Notify the Existing Company of Your Intention to Change

Once you have selected a new factoring company, it is time to notify your existing provider of your intention to cancel your agreement with them. When you switch factoring companies, your new provider will usually buy any outstanding sales invoices in what is known as a buyout. Giving notice will allow the company to prepare your account for the transfer and advise you of the next steps and any potential costs of the buyout process.

  1. Sign the Agreement with Your New Factoring Company

The next stage is to agree and sign a contract with your new factoring company. In the meantime, you will still be using the services of your existing provider. Your new contract will not come into force until everything has been agreed upon and the two factoring companies have communicated about the buyout. Your company will need to be approved by the new factoring company, too. And you will need to give your existing provider authority to disclose information to the new factoring company.

  1. Advise Your Customers of the Change

It is best to advise customers in advance of the impending change. So, write to customers explaining the start date for the new arrangement, and notify them of where they will need to send future payments. The old factoring company will forward payments to the new provider following the transfer of business. However, it is better to encourage customers to update their accounts payable systems with the revised payment details as soon as the change takes effect.

  1. Allow Plenty of Time for the Changeover

The crucial thing is to plan for the change and allow the two factoring companies to agree on the buyout details. And you will need time to research and select a new provider and to advise your customers. Then, all that’s left to do is wait for the switch to be finalized. And, on an agreed date, the old company will stop processing your invoices and payments, and the new one will take over. Any customer payments sent to the old company will be forwarded to the new company.

The Bottom Line

So, switching factoring companies is a relatively straightforward process. However, you do need to plan the switch to avoid any disruptions to your cash flow. And, of course, you need to take your time selecting a factoring provider that will work with you and provide you with the service you need.

Your Questions Answered Quickly

Whether your business is thriving and you can’t keep up, or you are waiting on clients to pay, Universal Funding can help your growing company. Call us at 800.405.6035 or complete our rate form today to learn more about invoice factoring and how it can improve your company’s cash flow.

About Universal Funding

Universal Funding is a nationwide invoice factoring solutions leader, supporting growth-focused businesses with scalable factoring solutions. With its invoice factoring, payroll funding, and purchase order financing services, Universal Funding provides clients with the working capital needed to grow and support their businesses without taking on new debt. Ranked as one of the nation’s top invoice factoring companies, Universal Funding provides cash flow financing for businesses all across the United States.