When it comes to invoice factoring, there are a myriad of myths that surround this form of financing. From ideas that stem out of a lack of understanding to companies that have been led astray by inexperienced CPAs, bankers, or lawyers, invoice factoring has, in many ways, received an unwarranted bad rap. The good news is that most of the myths surrounding invoice factoring are just that — falsities. Here at the Commercial Finance Group, we are passionate about helping companies discover the truth about this unique funding solution. Read on to learn more about the truth behind these common invoice factoring myths.
Myth #1: Invoice Factoring Is Too Expensive
In many cases, companies shy away from invoice factoring due to a misunderstanding about the costs associated with it. Sometimes this is due to people falsely comparing it to standard bank loan rates. In reality, factoring can be an extremely affordable option for small businesses, startups, and other companies in need of alternative funding.
The key to not drowning in expenses is to work with a company that is upfront in their pricing structure. Often, factoring companies who promise insanely low rates do so because they later hide other fees and costs. Make sure to work with a factoring company that lays everything out clearly and you can actually utilize this funding in a very lucrative way.
Myth #2: Factoring Is Only For Failing Companies
Another myth surrounding invoice financing is that it is only a last resort for failing companies. The reality is that many healthy companies opt for factoring because it works to improve their cash flow during a unique time for their company. For example, many startups go through a rapid growth period in which a consistent cash flow can be difficult to maintain. In this situation, factoring can help fill in the gap and create the working capital needed to continue to pursue growth goals.
Invoice factoring allows young companies, small businesses, and others in unique scenarios to utilize an asset they have on hand — invoices — to meet immediate needs. It also relieves those companies of the arduous task of collecting on accounts receivable.
Myth #3: You Will Have To Sell All Your Invoices Into Perpetuity
Some businesses falsely believe that if they commit to the sale of invoices at present, they will be forced to sell every invoice they have into perpetuity. The reality is that you can work with your factoring company to determine what time commitment is right for you and what flow of invoices they expect from you. The best factoring companies will be flexible and will not have outrageous expectations for your. Factoring should be utilized as a bridge, not as a forever plan. Don’t let this myth scare you away from working with the right factoring company.
Myth #4: All Factoring Companies Are Equal
Perhaps one of the number one reasons that invoice factoring is surrounded by unfortunate myths is due to poor factoring companies. Not every factoring company is the same. It is vitally important that you spend time seeking out the best factoring company for your needs, rather than just settling for the first company you come across. A good factoring company will approach the process in an entirely different way than a bad company. Some of the above myths are perpetuated by poorly handled factoring services.
Be sure you opt for a factoring company that is extremely clear in their communication and takes the time to understand your business’ unique needs. They should tailor the factoring agreement to exactly what you need and they should be focused on how this will benefit your company in the long run, not just in the immediacy.
Work With The Team At The Commercial Finance Group
Interested in invoice factoring as a solution for your small business? Here at the Commercial Finance Group, we have years of industry experience which we will put to use for you. We can help you determine if invoice factoring is the ideal solution for your needs. Not only that, but we will also work with you to create a long-term strategy for your company’s success. We want to act as your bridge back to bankability. Reach out today to learn more about how we can help you utilize factoring as the perfect funding solution for your small business or startup.
