Invoice Factoring Myths and Misconceptions

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Ultimate Invoice Factoring Guide
Invoice Factoring Myths and Misconceptions

Even though invoice factoring has existed for hundreds of years as a source of business funding, it is still not well understood by many businesses.

As a result, there are many misconceptions about what factoring is. The following are examples of common myths and misconceptions about invoice factoring and the truth about how it works.

Invoice Factoring Myth: Factoring is expensive.

Factoring rates vary for multiple reasons, much like all other forms of financing, but are often competitive with bank loan rates. Additionally, a bank loan only provides money with no additional benefits, whereas factoring also includes vital back office services like invoice verification, billing, and collections that can take a lot of work off a business’s plate. At the end of the day, a factoring company does better when their clients are profitable and growing.

Invoice Factoring Myth: Factoring is Only For Companies That are Doing Badly

While struggling businesses can be helped by factoring companies, factoring is not intended to save companies on the verge of failing. Factoring is designed to help companies looking to grow. In the same way that a bank loan or line of credit is not seen as a feature of a financially weak company, neither should an account with a factoring company.

Invoice Factoring Myth: Factoring Companies Harass Your Customers.

Hands down, every reputable factoring company will treat your customers professionally and with the utmost respect. Since a factoring company needs a customer’s permission to factor invoices with them, it is in a factors best interests to build a good relationship with your customers.

Invoice Factoring Myth: My Customers Will Leave if They See That I am Factoring My Invoices

Factoring is a tool that increases a business’s cash flow. Rather than leave when they see you factoring, your customers could see that you have the financial backing of a factoring company and prefer to do business with you, knowing that you can afford to take on whatever work they need, when they need it, regardless of lead time.

Invoice Factoring Myth: Bank Loans or Lines of Credit Are Always Better

While a bank loan or line of credit can be cheaper than a factoring rate, they are often far less flexible than factoring. Additionally, they come with far more complex restrictions and regulations for your company to follow. Most importantly, bank loans and lines of credit are debt, whereas factoring is not.

Invoice Factoring Myth: All Factoring Companies Are the Same

Invoice factoring is essentially the same thing no matter what company you go to. Your invoices are sold to a factor who pays you weeks faster than you would normally be paid. But that is where the similarities between factoring companies stop. Extra services, rates, terms, industry specialties, and quality of client service differentiate every factoring company from each other.