Invoice Factoring Myths and Misconceptions

There are a number of myths that surround invoice factoring about the process which, while widely debunked, are perhaps not as well-known as they ought to be. 

Essentially, business invoice factoring will allow you to sell your invoices or accounts receivable on at a discount – which can allow you to obtain cash quicker than having to wait for money to clear from certain sources. 

Here are five major myths about the process you need to know about before getting started.

Dispelling the myths around Invoice Factoring

One common misconception about invoice factoring is that it is only for struggling businesses. In reality, invoice factoring can be a valuable financing tool for businesses of all sizes, including those with healthy cash flow. Another misconception is that invoice factoring is a form of debt.

However, it is actually a way to accelerate cash flow by selling invoices to a factoring company, making it more of a financial transaction than a loan.

As a business owner you are always looking for new methods to manage cash flow and minimise the stresses of handling an organisation’s funds. Invoice Factoring has stepped up to the plate as an stress-free alternative funding facility which helps business owners leverage their unpaid invoices. This type of finance offers an instant cash injection directly into the company.

This system provides a solution where payments are collected on your behalf and managed by a team of expert credit controllers, so you can focus on the ‘bigger picture’ elements of running your organisation.

While invoice factoring has established itself as a viable funding option for growing businesses, there are still a number of outdated myths around the topic still remain.

We dispel common misconceptions and myths surrounding invoice factoring.

Myth#1: Funding Invoices is Expensive

This is a fairly major concern, and it can turn firms and business people off the idea of factoring completely.  However, it remains to be said that factoring fees are decreasing gradually, and the overall cost of the process will largely depend upon where you may be in the process of running your firm.  For one, while you are growing your business, it may be more prudent to consider factoring as opposed to avoiding opportunities or selling equity to make money so factoring is not expensive.

Myth#2: Factoring Firms Harass Clients and Customers

Another big concern of businesses entering into invoice factoring is that the third parties selling invoices too will be heavy-handed with their customers in receiving cash.  It remains to be said that trusted experts such as Invoice Funding only ever follow legitimate, legal processes throughout factoring, and as such we are proud of our focus on customer service.  Rest assured, your customers are always in good hands.

Myth#3: Factoring is an Option used by Businesses in Trouble

It can be easy to be put off by processes such as business invoice factoring as it may seem that it can be used as a last resort, or as an option for immediate cash in desperate times.  However, it is more widely used by growing businesses with promising futures and for start-ups who are unable to obtain bank loans as a result of a lack of trading history.  It is financial support that stimulates growth – not a crutch.

Myth#4: Customers Dislike Invoice Finance

Some customers may not understand the process of business invoice factoring right away, but the truth to this matter is, passing invoice collection over to third party experts such as Invoice Funding will allow you to spend more time developing professional relationships with your clients, and less time chasing them for finance.  Clients can therefore expect a closer and more comprehensive service – and they will likely understand that you have a separate team or body in place to collect on invoicing.

Myth#5: I can’t use factoring if I have a low credit score

One great advantage of factoring over more traditional financing is your business doesn’t need to have a credit history to qualify for factoring. Lenders will rely on the creditworthiness of the business’s customers in qualifying it for factor financing.

Myth#6: It is more expensive than an overdraft

It is often believed that invoice factoring is significantly more expensive than a bank overdraft. As most high street banks offer Invoice Factoring and therefore access to ‘cheap’ funds. As your business goes invoice factoring grows with it, but is not capped like an overdraft.

Myth#7: Its quicker to get a business loan

Business owners think it is quicker to get a business loan that use an invoice factoring facility. this clearly is not true, factoring facilities can be in place within seven working days, business loans from high street lenders can take months to progress.

Conclusion

Dispelling the myths around invoice factoring is crucial to understanding its true value as a financial solution. One prevalent misconception is that invoice factoring is a last resort for struggling businesses. In reality, invoice factoring can benefit businesses of all sizes, including those with healthy cash flow, by providing a quick infusion of working capital.

Another common myth is that invoice factoring is a form of debt. However, it is important to note that invoice factoring is not a loan but a means of accelerating cash flow by selling invoices to a factoring company.

By dispelling these misconceptions, businesses can better appreciate the flexibility and cash flow benefits that invoice factoring can offer, regardless of their financial situation.