cash flow management This is a common problem for many businesses, and unfortunately, the inability to effectively manage cash flow can be detrimental to a company’s long-term health and growth.
Even if you’re seeing positive developments on many financial metrics, there are a variety of reasons why you may need help generating enough cash—from difficulty collecting payments from a few large creditors to allowing too much credit to many creditors.
This is where invoice factoring comes into play – it’s a great way to tap into your company’s potential revenue without having to wait, giving you quick access to cash even if your invoices haven’t been paid yet.
but what exactly Invoice factoringand what are some of the most common misconceptions surrounding it? We’ll debunk it all in this article – let’s take a look at some of the biggest invoice factoring myths:
What is invoice factoring?
Before we get into the invoice factoring myths, it’s important to understand what invoice factoring is Exactly.
This type of financing allows you to sell your outstanding invoices or accounts receivable to a third-party company called a factor or factoring company.
you will receive instant cash From that factor, usually a percentage of the invoice value, rather than waiting for the customer to pay the invoice. The factor, on the other hand, takes over the responsibility for collection.
How is invoice factoring different from lending?
Invoice factoring differs from traditional commercial loans in several ways:
- Structure and Process – Invoice factoring involves selling your accounts receivable for immediate cash, while a business loan allows you to borrow a fixed amount of money from a lender and agree to pay it back over time with interest.
- Ownership and Responsibility – When you factor an invoice, you are essentially selling your right to receive payment for that invoice to the factoring company – which does not add debt to your balance sheet. However, a business loan adds liability to your balance sheet because the money you borrow must be repaid.
- Eligibility criteria – To get approved for invoice factoring, you will be evaluated primarily on the creditworthiness of your customers, not your business. Factoring companies are more concerned with whether your client will pay the invoice. However, traditional loans require a thorough evaluation of your business.
- Cash flow and speed – Invoice factoring typically provides immediate access to cash within 24 to 48 hours of submitting an invoice. Business loans tend to be more time consuming unless you apply with NBC – we can get you approved and funded in as little as 24 hours!
- Flexibility and use – Factoring is highly flexible, allowing you to choose to factor only specific invoices or customers based on your cash flow needs. However, traditional business loans are less flexible – once you get the loan, you have to adhere to a strict repayment schedule.
7 myths about invoice factoring busted
So why are there so many misunderstandings about this type of financing? Let’s take a look and bust some of the most common invoice factoring myths:
1. Invoice factoring companies control your customers
This myth does exist some truth to it. Dealing with a factoring company that constantly demands payment and information from your client can be a bad experience for both you and your client.
However, few financing companies, including National Business Capital, are able to eliminate the link between your client and the factoring company, allowing you to regain control Go above and beyond for your customers and eliminate frustration.
2. Clients will look down upon you for using invoice factoring
No, they probably won’t. In fact, the vast majority of customers have become so accustomed to business owners using PO financing to pay invoices that it has become standard for most wholesale, distribution, transportation, manufacturing, and retail businesses.
Additionally, customers are often focused on the quality of the product or service provided and the reliability of your business rather than the specific financial arrangements you use – so definitely don’t believe this one of the most common invoice factoring myths!
3. Financing through factoring takes weeks to months
Next on our list of invoice factoring myths is that it takes anywhere from weeks to months to fund through factoring – but here’s the thing This is not the case If you find the right financing company.
Yes, most factoring companies take a few weeks to a few months to see funds flowing to you. However, with National’s fast and streamlined process, you can convert your invoices into cash on hand 1-4 days After applying.
4. Lack of return transparency in factoring business
Another common misconception about invoice factoring is the lack of transparency in returns from factoring.
But that doesn’t have to be the case – there are invoice factoring lenders now offering completely transparent Before you sign up, let’s pay back your borrowed factoring capital like a small business loan!
one of them is Professional financial group National Business Capital – You can view our business loan options here.
5. Factoring cannot meet your invoicing needs
It’s true that most invoice factoring companies only cover a small portion of a company’s invoices, which can end up doing more harm than good in the long run.
In fact, invoice factoring products can cover Up to 90% of all invoices– No matter what your factoring company may tell you. National is one of the few financing companies that offers this level of insurance, so you can check it off your list of invoice factoring myths.
6. Interest rates are too high
One of the most common invoice factoring misconceptions is that the interest rate is too high, but this is not the case, despite what past financing companies may have told you.
National Semiconductor offers fully transparent invoice factoring services with lower rates and longer terms than most traditional factoring companies.
7. It is too difficult to qualify for invoice factoring approval
Yes, with a traditional factoring company, approval can be so difficult that you’ll start to wonder how any business gets factoring funding.
The answer is that they obtain funding through financing companies such as National Commercial Capital. Invoice factoring is one of, if not the easiest, options to get approved – so don’t hesitate to apply with us!
How to use national commercial capital to obtain invoice factoring
Just call (877)482-3008 Chat with a member of our team or fill out our simple 1-minute application online to get started and get the secured or unsecured business loan of your choice in as little as 24 hours!
We’d be happy to learn about your business financing needs and goals, help you understand the details of our unsecured loan products (of which we offer several), and answer all of your questions clearly and honestly, without any confusing jargon.