Small business owners often have a hard time sustaining cash flow, but many are unaware of the advantages of invoice factoring. In the search for the right funding solution, owners should consider the following misconceptions about factoring.
It’s Too Expensive
Rates can vary depending on the factor chosen. Before signing an agreement, the business owner should learn about the fees they’ll incur. Some factors only charge a per-invoice fee, while others add charges for credit checks and other services. Factoring gives business owners the cash they need to gain access to new opportunities, and with the right choice, the benefits can outweigh the cost.
Factoring Only Helps Companies That Are In Trouble
Another misconception is that factoring is only beneficial to failing businesses. This is simply untrue, considering that the idea is to create cash flow. Invoice factoring is ideal for businesses of all sizes, as well as those in growth and turnaround phases.
Factoring Upsets Customers
Many business owners believe that if they hand invoice payments off to a factor, customers will believe that the company is in trouble. Contrary to that belief, factoring is a common solution among successful businesses, and many clients are already aware of how it works. In the end, hiring a factoring company can free up a great deal of the business owner’s time and reduce the stress involved in taking customers’ payments.
The Company Loses Control of Its Invoices
Many business owners believe that giving invoices to a factor means that they have to relinquish control. Although owners use the factor’s services, they still maintain full control over the factored invoices.
Factoring Creates a Debt Burden
Other lending and financing options may provide short-term help, but they’re just not ideal for long-term use. Instead of offering the owner the chance to capitalize on growth opportunities, some alternative financing options can start a debt cycle. Because a factor provides a business with money already earned, working capital provides financing flexibility without the additional debt burden.
When choosing a factor, the business owner must consider its experience, reporting practices, fees and penalty rules. Making the wrong choice may result in hidden expenses, damage to customer relationships and a frustrating experience. However, making the right choice can help a business access the working capital it needs to grow and develop.