If you have outstanding invoices, accounts receivable financing offers you a convenient way to swell your organization’s coffers and improve your cash flow. Many people view it as a good alternative to traditional, commercial loans, but smart business owners know that it’s practically risk-free and straightforward. It allows you to free up working capital without increasing your company’s liabilities.
Despite its obvious advantages, it’s a puzzle that this financial arrangement is yet to be as widespread as it should be. One of the biggest things hurting its popularity is the misconceptions less savvy business owners still have about it.
To fully appreciate its value and use it to its best effect, let’s debunk the most common invoice financing myths:
1. It Sends a Message That Your Company Is Failing
While many SME’s want to get cash advances for their receivables, doing so doesn’t automatically indicate that your business is growing financially weak. Every organization has its challenges, but businesses of all sizes usually use the capital to fund expansion. Factoring companies rely on repeat business, and they make a living with growing organizations.
2. It Highlights Your Inability to Collect Unpaid Invoices
Wrong. Most businesses don’t turn to factoring companies to convert unpaid invoices into real dollars fast out of desperation. They like to have the capital available at their disposal without the long time. You don’t go to a factoring company for debt collection.
3. It Affects Your Business Relationships with Clients
First, your suppliers are less likely even to know you’re using invoice financing. Second, the factoring company won’t harass your customers and strain your relationships with them. Unlike debt collectors that directly contact delinquent dealers, a factoring company would hardly communicate with your customers and quietly wait for them to pay up. In many cases, factoring companies only initiate some level of contact with suppliers to verify invoices and set up flexible payment arrangements, if necessary.
4. It Costs Unreasonably High
The costs related to invoice financing are highly competitive. TAB Bank notes that in general, factoring companies value accounts receivables based on age and company size. Regardless of the fees involved, expect absolute transparency, allowing you to manage your expectations and make informed decisions.
Invoice financing renders waiting for receivables to be paid a thing of the past. It might not be suitable for every situation, but it’s a great way to obtain necessary cash advances without acquiring high-interest debts.