Biggest challenges when signing a factoring agreement

Date: 2023.12.12

With the demand for factoring always increasing, factoring companies have their work cut out trying to keep up. Every factoring agreement creates a new set of administrative challenges which you must be prepared for. If you’re ready to overcome the obstacles which are thrown your way, costs will come down and you are going to move ahead of your competitors. In this article, we’d like to look over the biggest challenges and obstacles which a factoring company faces when signing a factoring contract agreement. Let’s begin!

Managing lots of data

It’s no surprise that managing factoring agreements is actually mostly just managing a lot of data, related to financial operations. And that’s the first challenge that a factoring company faces – how to deal with endless amounts of paperwork and information to keep clients posted on.

The best way to streamline and improve the speed of document and data processing is by creating a method or implementing a practice into the company culture. If every employee and staff member knows what they’re responsible for, which duties they have to carry out and what they need to deliver, there’re going to be fewer delays both short and long-term.

The best tool for dealing with factoring agreement data management is definitely factoring software. It’s developed with these administrative challenges in mind. Thus, you can expect to find a variety of features and a user interface, tailored to the needs of your business. Group and manage documents through a simple and user-friendly interface. Export or import data for maximum convenience as well as use the ability to integrate current data with the general ledger.

Following up on factoring agreement inquiries and communicating with potential clients

One of the more concrete issues for factoring companies is related not to existing or current, but rather to potential or future clients. Being able to send quotes, assess the risks, manage and draft documents is essential in gaining new business. Before getting into a factoring receivables agreement with your company, a client will almost always be eager to learn more about the terms and conditions which are going to apply.

If you’re not using highly advanced software or calculators for the job, it’s going to be hard giving a detailed quote or making the right insights via risk evaluation. Once again, dedicated factoring software helps out because it can have modules and calculators for maximum convenience. Input numbers, see the calculations, and make more informed decisions on your end while simultaneously offering your clients the possibility to get a quote.

Following up is an essential part of guaranteeing new business. Using the software which we mention so often, you can easily start new contracts and add them to your general database. Mark relative activities, add notes to responsible staff members, and never miss a deadline!

Legal matters

When it comes to handling contracts and preparing legal documents, it’s really tough on your finances and can be very time-consuming. Larger companies usually hire some legal staff but more often than not, you can see them employing legal reps only part-time or turning towards freelance consultants, or even hiring law firms exclusively to work with them. This is the standard option that businesses tend to choose often times, but it does have downsides. First and foremost, employing a legal staff member or an outright legal team is mighty expensive.

Outsourcing help is much more cost-efficient but you still might not need that much spending on preparing legal docs. What you could do is prepare a lot of templates and embed them into the app. By doing so, you can almost instantly prepare any financing factoring agreement for your clients. This option could save you up to six-figure sums, annually.

Keeping administrative costs down

Whenever a new client appears or you enter into a new agreement, it’s always initially quite difficult trying to not exceed your cost cap. With the added difficulty of new clients and each new factoring contract agreement, companies can struggle with optimizing resource management and spending.

If you’re well-prepared, meaning if you have developed a process tree for handling new contracts, your business can expect to not overspend. However, if you’re not ready for an influx of clients or for the workload to increase in the near future, you could expect an avalanche of problems if new clients come knocking.

The best way to reduce administrative costs is by just reducing the work your administrative staff has to do and automating as much, as possible. The only viable option which solves both problems is factoring agreement management tools. These are either a part of factoring software or come as separate tools. You can read case studies on this topic or ask for experiences from businesses that are using such software. The most interesting thing you’ll find out is how many hours they were able to save by implementing an organized process for data flow management and starting to use dedicated software solutions. As we’ve said before, this will reduce spending and save tens of hours of manual labor, each week.

International (multicurrency and variable index) operations

If your clients send you invoices in different currencies or if you’re in contract with international companies, you might need to carry out numerous operations in multiple currencies. This is a challenge to every financial organization because such factoring contract agreements tend to require more resources to manage due to the currency conversions, etc.

In addition, variable indexes like EURIBOR, etc., could play a role in trying to manage and make calculations. Luckily, dedicated software solutions are prepared to solve this headache for you. Thanks to prepared calculators, you can track important data and find out exact amounts to pay as well as related costs, taxes, etc. by merely inputting certain figures and exchange rates. The rest will be calculated by the program itself, reducing the administrative workload by a whole lot.