Though it has been around for hundreds even thousands of years, invoice factoring is a new term to many in business. As is often the case, speculation and misgivings can occur when people don’t fully understand what something is. People may assume the worst. Because confusion can surround new concepts, we’ve taken the time to clarify some common misunderstandings about factoring receivables.
Invoice Factoring Is for Companies That Are Attempting to Fend Off Bankruptcy
Untrue. Many in-the-black, profitable and growing companies choose factoring services because they can get their money right away whereas banks often take several weeks. According to Bloomberg.com, many banks such as JPMorgan, have been slow to lend in this economy, which some suspect could be partially attributable to the growth in invoice factoring companies in the 21st century. In fact, the financial process is a popular option for companies experiencing rapid growth, quite the opposite of a business that is on the verge of bankruptcy.
Invoice Factoring Services Aren’t Suitable for My Industry
Untrue. While some sectors such as manufacturing, clothing and textiles have a very long history of using factoring receivables, it can be used by a myriad of industries, including staffing, payroll, trucking, transportation, government & defense contracting, medical & pharmaceutical supplies and so much more. Many might be surprised to know that more and more small businesses are choosing this option because of its fast turnaround, minimal paperwork requirements and customer-focused business model.
Factoring Invoices? That Sounds Complicated!
True. We’ll give you this one. The phrase “account receivables factoring” does, quite frankly, sound confusing. So it is no wonder the term has generated so much misunderstanding. Once you understand the process with a trusted factoring company (which is key!), you’ll soon discover it isn’t that confusing after all. Many factoring companies like us work very hard to make this process as seamless & painless as possible for our customers. We think that is truly what puts our services above the rest.
In a nutshell, it works like this: You need money right away to cover an unexpected expense, bolster cash flow, (or something else). A traditional loan takes weeks and you can’t wait that long. A factoring company takes a look at your invoices – the documents that show what your current clients owe you. Using these invoices as collateral, it then “buys” those invoices from you enabling you to get that money in advance. Your clients they pay their invoices to the factoring company (within the usual 30-day window). Beyond this, a traditional non-recourse factoring company takes on all the risk & is entirely responsible to the collections processing alleviating the business of this stress.
So don’t believe the hype when it comes to factoring receivables. The process offers a lot of benefits to businesses of all sectors and sizes so talk to an agent to see if it fits your business needs.