Start with the question behind the question
Switching factoring companies is a project, not a phone call. Your current factor holds a lien on your receivables, your customers have been told to pay it, and the fee you negotiated two years ago is probably not the fee you are paying today. Whether the move is worth it depends on three things: how much the current relationship is costing you above the alternatives, what it will cost to leave, and whether your contract lets you leave on a date you choose.
This page is about the decision. The mechanics, from notice to buyout to the new notice of assignment, are in our step-by-step switching guide, which is written for carriers but applies to any industry.
The signals that usually justify a switch
Not every irritation is worth a move. These are the ones that tend to add up to real money.
- Rate creep. The rate on your first invoices was the one in the proposal. Tiered schedules, where the fee rises as an invoice ages, mean your effective rate drifts up as customers pay slower. If you have not recalculated your blended rate in a year, do it now with the factoring cost calculator and compare it with the published ranges on the industry pages.
- Slow funding. Most factors we profile publish a same-day or next-day funding promise. If your submissions routinely fund two or three days later, you are paying a same-day price for a slower service.
- Late reserve releases. The reserve is your money. A factor that holds it for weeks after the customer pays, or offsets it against unrelated charges without an itemized statement, is quietly lowering your advance rate.
- Your customers complain about collections. When a broker or a buyer tells you the factor's collections team is rude or aggressive, that is a cost to your relationship that never shows on a statement.
- Fees that were not in the proposal. Wire fees, invoice processing fees, monthly minimum fees and credit check charges that appear mid-contract are covered in our hidden fees guide. One or two are a conversation; a pattern is a reason to leave.
- Service that has fallen off. A rep who no longer answers, an app that keeps breaking, or a fuel card that stopped working are reasons, but on their own they rarely beat the switching cost. Combine them with one of the money signals above before you move.
What switching actually costs
The costs are specific and mostly knowable in advance. Get each one in writing from your current factor before you decide.
The buyout. Your new factor pays your old factor for the invoices it still holds, then advances you against them on its own terms. The old factor's payoff is the advanced amount plus accrued fees on each open invoice, minus any reserve it owes you. Ask for a payoff letter that lists every open invoice with the fee accrued to a stated date. The new factor will usually fund the buyout out of your first advance, which means your first week with the new company can be thin.
Early termination fees. Some contracts charge a flat fee or a percentage of your average monthly volume if you leave before the term ends. This is the number that most often makes a switch not worth it, so read the termination clause first.
Notice windows and auto-renewal. A contract with a twelve-month term and a 30- or 60-day notice window will renew for another term if you miss the window. Put the last day to give notice on your calendar the day you sign anything.
Downtime. Between the old factor's release and the new factor's first funding there is usually a gap of a few days to two weeks. You still have to pay drivers, suppliers or payroll in that gap, so plan the move for a month when cash is not already tight.
Re-sending notices of assignment. Every customer that pays you has to be told, in a notice the old factor releases and the new factor sends, to pay the new company. Under the Uniform Commercial Code, a customer may keep paying the old assignee until it receives an authenticated notification that the receivable has been assigned to the new one (Cornell LII — UCC 9-406). Misdirected payments in the first month are common, and each one takes phone calls to unwind.
Read the term before you read the rate
The single most useful thing you can do before comparing factors is to find the paragraph in your current agreement that states the term, the renewal rule and the notice period. What companies publish about this varies widely, and the published terms are a fair preview of what the contract will say.
| Factor | What it publishes about the term |
|---|---|
| Apex Capital | No long-term contract and no cancellation fee (Apex FAQ) |
| Liquid Capital | No long-term contract, no auto-renewal or exit fees (Liquid Capital FAQ) |
| Phoenix Capital Group | Month-to-month; no setup, termination or invoice-processing fees (Phoenix Capital Group FAQ) |
| TBS Factoring | No long-term commitment on its non-recourse program (TBS — Freight factoring) |
| Thunder Funding | 90-day agreement (Thunder Funding FAQ) |
| Riviera Finance | Six-month standard term, adjustable (Riviera Finance FAQ) |
| Porter Freight Funding | One-year agreement (Porter Freight Funding FAQ) |
| Bobtail | 90-day trial, then a long-term contract (Bobtail factoring FAQ) |
Two things to take from the table. First, "no long-term contract" is a published promise, not a contract clause; you still need the signed agreement to say what the notice period is and what happens to open invoices when you leave. Second, a trial that converts into a long term is a term, and the clock starts on day one. The contract guide walks through the clause language.
The break-even arithmetic
Put numbers on it before you call anyone. The calculation has three inputs: your monthly factored volume, the difference between your current blended rate and the rate you have been quoted, and the one-time cost of switching.
Suppose you factor $150,000 a month, your statements show you are paying an effective 3.2 percent once tiers and fees are counted, and a new factor has quoted a flat 2.4 percent with the fees you asked about included. The difference is 0.8 percent of $150,000, or $1,200 a month. If the old contract's early termination fee is $3,000, the buyout carries two weeks of accrued fees on $150,000 of open invoices (roughly half a month's fees, about $2,400 at the old rate), and you lose a week of productive time to the paperwork, the switch costs somewhere around $6,000 all in. At $1,200 a month, it pays for itself in five months. If the quoted saving were 0.3 percent instead, the payback would be more than a year, and waiting for the term to end would be the better move.
Run the same numbers with the new quote's worst tier, not its best. A quote that is cheaper only while customers pay in 30 days is not cheaper for a business whose customers pay in 45.
Can you keep both factors?
Usually not, and the reason is structural rather than contractual. A factor files a UCC-1 financing statement that covers your accounts, and the notice of assignment tells your customers to pay it. A second factor cannot take a first-position interest in receivables the first one already claims, and most will not fund behind another lien. The practical exceptions are narrow: some agreements let you carve out named customers, and a few factors that advertise spot factoring will buy single invoices from a customer that is not under another factor's notice. If you want to test a new factor before committing, ask the old one in writing which customers, if any, it will release, and ask the new one whether it will fund only those. Most of the time the answer is that you switch everything or nothing.
Choosing the next factor so you do not switch again
The second switch is always more expensive than the first, because the buyout is bigger and your customers are tired of new payment instructions. Use the following before you sign.
- Get the full fee schedule in writing, including wire, processing, minimum-volume, credit check and termination charges, and compare it with the categories in the hidden fees guide.
- Match the term to your horizon. If you expect to outgrow factoring within a year, a month-to-month or 90-day agreement is worth a slightly higher rate.
- Confirm the recourse definition. Non-recourse that covers only a customer's bankruptcy is a different product from one that covers non-payment, and the non-recourse list ranks factors by how clearly they define the covered event.
- Check funding cutoffs against your workflow. A same-day promise with an 11 a.m. cutoff is a next-day promise for a dispatcher who invoices at 4 p.m.
- Read the complaint records on the Better Business Bureau and your state attorney general's site, not just the star rating.
- Compare two or three finalists side by side using their profiles or the lists for trucking and for smaller businesses.
If you would rather start from your situation than from a list, the get-matched wizard ranks the factors we have profiled by industry, state and monthly volume and connects you with one that fits. The factor quotes your terms; we are paid by factors for introductions, never by you.
Frequently asked questions
How long does switching factoring companies take?
From giving notice to first funding with the new factor, two to four weeks is typical when the old contract allows termination and the payoff letter arrives promptly. The longest delays come from a slow payoff letter, a disputed reserve balance, or customers that keep paying the old factor after the new notice of assignment goes out. Plan for a cash gap of one to two weeks regardless.
Will my customers be told that I switched?
Yes. The notice of assignment that redirects payment has to reach every customer, and it names the new factor. In trucking, brokers see this often and it rarely raises questions; in staffing or construction, where a customer may have only one or two vendors who factor, it is worth a short call to the accounts payable contact explaining the change before the letter lands.
Can I switch before my contract term ends?
Only on the contract's terms. Some agreements allow early termination for a fee, some require you to wait for the renewal window, and a few have no minimum term at all. The early termination fee and the buyout are the two numbers that decide whether leaving early is worth it; the break-even arithmetic above is the way to check.
Does the new factor pay the buyout?
In most cases the new factor pays the old factor directly and deducts the amount from your first advance. That is convenient, but it means your first funding is smaller than the headline advance rate suggests. Ask the new factor for a written estimate of your first-week cash position before you give notice.