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The Most Common Misconceptions About Invoice Factoring

Invoice factoring, also known as accounts receivable funding, is an effective way to provide your business with working capital rather than having to wait to collect revenue on invoices. It can relieve the worries of not having a consistent cash flow to keep up with any existing expenses. However, there are many myths and misconceptions regarding invoice factoring. It is important for you to have a clear and concise understanding of what to expect. These are some of the most common misconceptions.  

Factoring Doesn’t Lock You into a Long-Term Contract 

Some factoring companies do require long-term contracts. This may vary between 90 days to 12-24 months. However, a long-term contract is not as intimidating as it may seem. These companies often offer lower factoring rates when committing to a longer contract. Some may be more flexible in terms of the duration of the contract. Understanding the benefits of what contract duration works best for your business is essential. To avoid any early cancellation fees or fine print misunderstandings, make sure to review your contracts thoroughly and ask questions. Other funding companies do not require long-term contracts, and they work with you to choose a time frame that works best for your business. 

Understand the terms of your contracts with the funding company.

A Good Factoring Company Will Not Demand Large Upfront Fees 

It is not uncommon for factoring companies to charge an upfront fee when working with new clients. However, it is normally just a small fee for the application. It is important that these companies are transparent with you about any upfront terms and fees.  The application process itself takes only a few days to be approved and is a forthright, affordable process. 

Invoice Factoring Collections on Your Invoices Will Not Affect Your Customer Relationship 

Your customers may not be aware of what invoice factoring is, and those who do – typically understand the benefits of invoice factoring. This has become more common within industries and is only growing exponentially. It is in these companies’ best interest to maintain a good relationship between themselves and your customers. If not, it would be detrimental to them as well. Essentially, the only difference that your customers are facing is making their checks payable to the factoring company rather than yours. These accounts receivable management companies aim to make these payment processes efficient while not harassing the customers, which should not discourage them.  

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