By Bob Baker, Owner of Baker Garrington
Factoring can be one of the best tools a business has for managing cash flow, but only if it’s done the right way. Over the years, we’ve seen many companies run into issues not because factoring doesn’t work, but because of how it’s used.
Here are five of the most common mistakes we see in factoring and how to avoid them.
1. Not Building Trust With Your Factor
This one is first on the list because it’s the most important, even though many worry most about rates!
Trust and communication are everything. You should be comfortable enough with your factor to pick up the phone when something unexpected comes up, even if it’s to say, “We’re short for payroll this week.”
The best partnerships are built on open communication and problem solving. The right factor should listen, understand your situation, and work with you to find a solution, not push you toward debt or unnecessary loans. That’s what a real partnership looks like.
Choose your factoring company based on trust, flexibility, and transparency, not just on rate or how easy it is to set up. In the end, the right partner almost always turns out to be the most cost-effective choice.
2. Losing Control
Never lose control of your finances.
Factoring should work for you, not the other way around. You should always decide:
- When to factor
- How much to factor
- Which customers to factor
- And most importantly, when not to factor
When you let your factor make those choices for you, you give up flexibility, and that’s the one thing every business needs most. The goal is to keep control in your hands so your financing can move with your business, not hold it back.
3. Thinking You Have to Factor Everything
It’s bad business to think you have to factor every invoice, all the time.
Cash-flow needs can change daily. Locking yourself into an all-or-nothing setup limits your ability to react to new opportunities. When your customers call with new work, you want to be ready, not tied down by a structure that doesn’t fit the moment.
By factoring only what you need, when you need it, you save money and keep the freedom to adapt quickly. Flexibility isn’t just nice to have; it’s what keeps your business moving forward.
4. Not Checking References
Choosing a factor is about trust. Before signing anything, ask for references, and actually call them!
Ask questions like:
- How does the factor handle issues when they come up?
- Do they respond quickly and communicate clearly?
- Does the team feel like a real extension of your own business?
A good factoring partner should feel like part of your team.
5. Not Understanding Credit Options
Credit, non-recourse, and credit insurance can all sound similar, but they each work differently.
Here’s a quick breakdown:
- Credit opinion – Based on expert review of public information and credit agencies. Reliable most of the time.
- Credit with insurance – Adds another layer of protection using insurer data, giving a fuller picture of your customers’ risk, creating similar coverage benefits to a traditional non-recourse program.
- Non-recourse factoring – The factor assumes the credit risk, but if there’s any kind of “dispute,” that risk often shifts back to you. Credit limit approvals still fall on the factor, so it’s based on their appetite for risk.
There’s no one-size-fits-all answer. The best setup depends on your business, your customers, and your comfort level with risk. What matters most is knowing exactly what protection you do, and don’t, have.
The Bottom Line
Factoring should make your business stronger, not slower. When you stay in control, work with people you trust, and remain flexible, factoring becomes more than just funding, it becomes a tool for growth.
Control, flexibility, and trust come first. That’s how true partnerships are built, and it’s how businesses keep moving forward no matter what comes their way.