The concept of invoice factoring is mysterious for many business owners. Even though businesses in many different industries have been benefiting from accounts receivable factoring for decades, the invoice factoring method is not always fully understood by some business owners.
In general, business owners fall into three different categories when it comes to their knowledge of invoice factoring: 1) they fully understand invoice factoring, 2) they have never before heard of invoice factoring, or 3) they have heard of invoice factoring but they do not know how it works.
Business owners that fall into category number 3 are often misguided by incorrect information about accounts receivable factoring. Following are some of the most common myths (and misconceptions) that some business owners believe about invoice factoring:
Myth: The only type of business that utilizes invoice factoring is one that is failing and/or on the verge of going out of business.
Truth: Invoice factoring companies are not in the business of bailing out failing companies. Instead, they prefer to work with businesses that have reliable customers that are capable of paying their outstanding invoices. Everyone wins when a business succeeds – and accounts receivable factoring is an excellent tool that many businesses utilize to ensure positive cash flow.
Myth: Only the largest companies in the world are candidates for invoice factoring.
Truth: Invoice factoring companies are happy to work with businesses of all sizes and within a wide range of industries. As a business owner, it should be your goal to find an invoice factoring company that has experience working with businesses that are similar to yours.
Myth: When you work with an invoice factoring company, you have no control over which invoices you want to factor and which invoices you want to collect on your own.
Truth: Every invoice factoring company has its own unique requirements, but many invoice factoring companies are flexible and let their clients pick and choose which invoices they want to factor.
Myth: Most businesses cannot afford the cost of accounts receivable factoring. It’s just too expensive!
Truth: While it’s true that invoice factoring is not free, the required fees are quite reasonable. And, in exchange, your business is able to benefit from an immediate influx of cash that can be used to pay overhead costs, payroll, and more. In reality, the cost of invoice factoring can pale in comparison to the interest that a business would have to pay on a bank loan.
Myth: Your customers will be upset when they learn that you regularly factor your invoices.
Truth: In today’s world, invoice factoring is becoming more and more popular every day. Most of your customers probably already know about invoice factoring, and will not be surprised to learn that your company has chosen this option. If your customers have questions, your invoice factoring company should be able to easily address their concerns.
Myth: Invoice factoring is a short term solution to businesses experiencing financial distress.
Truth: Some businesses utilize accounts receivable factoring as a short-term financial tool. However, there are plenty of businesses that elect to factor their invoices year-round for years on end. The beauty of invoice factoring is that the length of time a business utilizes invoice factoring is relatively flexible and can be decided on case by case basis.
Myth: An invoice factoring company will harass your customers.
Truth: Reputable invoice factoring companies are respectful and professional. They go out of their way to be helpful to your customers and to provide them with excellent customer service. Remember, it’s in the invoice company’s best interest to maintain a positive relationship with your clients.
Myth: Invoice factoring companies are difficult to work with.
Truth: It’s the job of an invoice factoring company to build a positive and professional relationship with your business and your customers. There is no reason for an invoice company to be deemed as “difficult to work with.” If you get the impression that it might be hard to work with a certain invoice factoring company, this is a good sign that you should look to another company for invoice factoring assistance. The bottom line is that the best invoice factoring companies make the process as simple and easy as possible.
Editor’s Note: Greg Curtiss is President of The Invoice Bankers. Mr. Curtiss previously was a lawyer and has passed the CPA exam. He has been in business for over 25 years. You can reach him by calling 303-740-7600 or 1-888-740-1750.