How to Switch Factoring Companies Without Losing Your Clients
Switching factors requires careful management of customer notifications, reserve releases, and timing. Here's a step-by-step transition guide.
Key Takeaways
- ✓Notify your current factor in writing first—respect the required notice period.
- ✓Time the switch so no invoices are mid-process when you transition.
- ✓New customers are easier to transition than existing customers mid-invoice cycle.
- ✓Reserve release from your old factor can take 30–90 days after termination.
- ✓Your new factor may pay your old factor's termination fee to win your business.
The Transition Challenge
Switching factoring companies is more complex than switching banks because:
1. Your customers are currently remitting payment to your old factor's lockbox
2. You may have outstanding invoices in the old factor's portfolio
3. Your old factor has a UCC lien on your receivables that must be terminated
4. Your reserve balance with the old factor won't be released immediately
Done wrong, a factoring switch can result in payment misdirection, double-funded invoices, or delayed reserve releases.
The Clean Transition Process
Step 1: Give proper termination notice to your current factor. Most contracts require 30–90 days written notice. This starts the official termination clock.
Step 2: Stop submitting new invoices to the old factor once you're ready to switch. Run out any existing pipeline with the old factor while onboarding with the new one.
Step 3: Onboard with the new factor. Simultaneously begin the application and approval process with your new factoring company. This takes 3–7 days typically.
Step 4: Customer notification timing. Send updated remittance instructions to your customers coordinating with both factors. Customers should be notified when to start paying the new factor's lockbox—not before.
Step 5: UCC transition. Your new factor will file a new UCC-1. Your old factor must terminate their UCC filing or subordinate to the new factor. Confirm this in writing.
Step 6: Reserve recovery. After termination, your old factor holds your reserve until all in-portfolio invoices are collected. This can take 30–90 days. Account for this cash gap in your transition planning.
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