Also known as accounts receivable financing, invoice factoring has been common practice in many companies. Despite that, however, there are still many myths that circulate about invoice factoring. One of the most common myths you’ve most likely heard by now is this: invoice factoring is only used by companies that aren’t successful. In other words, they’re failing. Fortunately, this is untrue, and so are the many other myths and misconceptions about invoice factoring.
Today, we want to shed light on many more invoice factoring myths to help you understand the truth and see precisely what invoice factoring is:
Myth 1. Factoring Is Way More Expensive than Other Forms of Financing
Factoring is usually cost-effective compared to other forms of financing, which may take a significant amount of time to put through company processes and procedures.
However, this isn’t always the case, so it’s always best to look into your options and compare invoice factoring to other financing options before you commit to anything.
Myth 2. Factoring Invoice Involves a Large Amount of Administration
Factoring invoices doesn’t involve as much administration as it previously used to, and this is why it’s slowly becoming a widespread practice.
With invoice factoring, you’re able to work on items that are not associated with the process. You can focus on your business instead of worrying about the paperwork.
Myth 3. Factoring Invoice Involves the Bank in Your Accounts Receivables
Factoring invoices doesn’t involve your bank or the bank of your business. A factoring invoice is a loan you take out to pay your outstanding invoices. The fact that it involves your company’s account is only there to prove that you’re a good credit risk, based on the fact that your company pays their outstanding invoices promptly.
Myth 4. Factoring Invoice Involves an Extra Fee
Factoring invoices doesn’t involve an extra fee. In fact, a factoring invoice is the same as another invoice. The only difference is that it’s for a company instead of an individual.
Myth 5. Factoring Invoice Involves a Long Period of Time to Get the Money
Factoring invoices can get a transaction from point A to point B in a matter of days rather than weeks or months. This is because of the accessibility and the speed of the process.
Myth 6. You Can’t Invoice Factoring to Pay Invoices
Yes, you absolutely can invoice factoring to pay invoices! You can invoice factoring to pay almost anything, including your invoices.
However, you can’t invoice factoring to pay off a debt you owe to a business.
Myth 7. You Can Borrow as Much as You Like Through Invoice Factoring
Sure, you can borrow as much as you like through invoice factoring. However, the amount you can borrow is also determined by your business’s ability to pay back the loan. This means that you will be limited by such factors!
With all of those myths out of the way, you now have a better idea of what invoice factoring is like! That said, always remember never to believe what you hear about invoice factoring or essentially anything else the first time without any backup evidence. Always take the time to research whether a claim is valid or not, and that will ensure that you won’t make any business decisions based on misconceptions that will hurt your ability to achieve success!
Porter Capital provides working capital solutions to help businesses around the US the money they need to achieve success! If you require invoice factoring in the US, reach out to us today!