It’s not the most conventional method of settling invoices, which is probably why factoring still has a lot of question marks hanging over it. However, with the popularity of the practice increasing, we thought we would scrutinise some of the top myths that blight the industry.
It should firstly go without saying that factoring is a process that isn’t for everyone and if your business is growing at a healthy rate and on a stable financial footing, it should probably be ignored. For a lot of small or medium-sized firms though, it can provide great relief. To get over some of the obstacles that the media might throw at you when it comes to factoring, we’ll now decipher several of the most common misconceptions that are branded about.
If you use factoring services, you must be struggling financially
The fact you are considering turning to a factoring service doesn’t mean that your business is struggling. While they can sometimes be used to aid in times of financial hardship, on the most part companies just use them to boost their cash reserves.
In other words, they are suffering from a cash flow problem. Particularly when your business starts to grow, it can become difficult to ensure that invoices are settled and making your company grow at the same time. With a factoring service, you are provided with the funds from the invoice immediately, allowing you to continue to finance your business accordingly. A lot of the time, this presents a perfect opportunity for expansion as well.
Factoring services take away huge dents from your profits
While we can’t speculate on the exact fees that every company charges, most factoring services are very fairly priced. Some will charge a flat fee, while others will work on a percentage-based formula.
In fact, the majority are happy to provide you with up to 90% of the invoice total immediately, followed by the final proportion (minus the small fee) when the customer settles the invoice. As you are already starting to see, these figures are quite small in the grand scheme of things and most people see that the instant access to the cash is much more important than getting the complete amount, but at a much later date.
Most customers don’t like the practice
Some people won’t dispute this and if you do opt to go with a factoring company, don’t be surprised to hear a small selection of your customer-base a little disgruntled.
However, let’s emphasise the “small” nature of this group. Most customers won’t bat an eyelid that you have changed your approach – after all, their finances aren’t affected in the slightest. The small proportion that you do “offend” are probably the group that take a long time to settle your invoices anyway. In other words, they are likely the companies that are worried that they won’t be able to get away with their late payments, as they are dealing with a specialist financial company who knows exactly how to deal with these delaying tactics.