Technological advances have also revolutionized the ways factors conduct business. "Prior to the development of web-based services, it was a very paper-intensive business," says Walsleben. "Now, most of us in the factoring industry [allow our clients to] submit invoices via e-mail. You have access to a 24-hour-a-day web server that shows in real time what checks have arrived, what [their] financial disposition is and what open invoices remain. You can look back historically and assist your [accountant] in pulling your books together to see how transactions were paid and what was outstanding at [certain] dates."
Says Knobel, "I have a much better handle on what's happening and when my customers are paying. I can go online and see in seconds exactly what's outstanding and what has been paid."
Business owners like Knobel also benefit from factors' stringent credit evaluation and monitoring, which can quickly spot problems and help businesses avoid losses. "We get a better chance to screen our customers to check their creditworthiness before we ship," Knobel says. "Hamilton has its own credit investigation process in addition to the standard D&B reports we use for new clientele."
Despite the factoring industry's evolution, some of the traditional rules still apply. First and foremost: the importance of finding a reputable factoring firm with a proven track record. According to Goldberg, you should start by talking to business owners who have worked with factors. Additionally, the International Factoring Association offers a "factor search" tool on its website, letting businesses search for factors based on their industry, physical location, the size of their company and whether or not they import or export goods. "Talk to various factors," adds Goldberg. "Find one that you can work well with, that understands your business and the types of services [you need]. It's not all about finding someone with the lowest price."
Knobel couldn't agree more. "We have been approached by other firms claiming that their rates are better," he says. "[But] when you take all things into consideration, [especially] the flexibility, this is not true."
Crystal Detamore-Rodman is a Charlottesville, Virginia, writer who covers the small-business finance market.