There are numerous ways to manage cash flow in order to keep your business growing. Invoice factoring uses your receivables as collateral, letting you harness the latent cash in your unpaid invoices. The process is simple: a factor gives you a line of credit using your outstanding invoices as collateral, and your loan is repaid as your clients pay those invoices.
While thousands of businesses use invoice factoring to managing cash flow effectively and efficiently, some business owners believe accessing funding is harder than it really is. At Summit Financial Resources, we want to put your mind at ease. We’re debunking five of the most common myths about invoice factoring in order to help you make an informed decision about whether or not it’s the right financing option for your small business.
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Myth # 1 – Invoice factoring is only for big businesses.
Invoice factoring is a working capital solution for established businesses and startups and for companies of all sizes. Just as there are large and small businesses, there are large and small factoring companies to serve them.
Small and newly minted businesses often face an uphill battle when it comes to accessing funds from banks or other commercial finance sources. Summit Financial Resources understands that many of these businesses have reliable customers and predictable cash flow. However, small business owners that are successful in attracting and retaining large customers can find themselves in the precarious position of taking on longer payment terms and bigger orders. This often creates cash flow hurdles that limit growth.
Our goal is to help customers overcome their operational hurdles by ensuring they have a steady stream of cash on hand. We’re collateral-focused, so we aren’t fazed by the kind of things that are going to turn off a bank – like the length of time you’ve been in business or credit issues. We can be more flexible, take more risks, and create custom financing structures that cannot be provided by banks or other commercial finance sources. Even if your business or product is brand new, if you have contracts with reputable customers and issue invoices, you can take advantage of factoring.
Myth #2 – Invoice factoring is a last resort.
The point of invoice factoring is to generate cash flow, not to bail out a failing business. In fact, if your small business is about to close its doors, it is unlikely that a reputable invoice factoring firm will work with you.
While Summit Financial Resources is interested in helping business owners who may have hit a rough patch, we want to work with successful customers that plan on growing and thriving. We understand that there are times when you need fast access to working capital, and our invoice factoring program is a viable strategy for securing the financing you need, when you need it.
Many companies use invoice factoring as a way to expand their businesses because the process is typically quicker and simpler than applying for a business loan from a bank. Invoice factoring firms evaluate all aspects of a company and consider a wide range of criteria to determine if the long-term potential is greater than the current difficulties. At Summit Financial Resources, our priority is building long-term relationships with our clients, and we do this by getting to know you, your business, and your customers. We can assess your business quickly and determine if invoice factoring is the right solution for your short-term cash flow challenges, so you won’t have to wait weeks for an approval.
Myth #3 – Invoice factoring is only for businesses with stellar credit.
Small businesses and startups often don’t have a solid enough credit history to qualify for traditional loans and financing. Many lenders want to see a track record of success, meaning at least two years of profitability, before they will get serious about doing business with you.
If you have not yet established business credit or if you have had some trouble paying your bills in the past, invoice factoring and asset-based lending can be among the best funding options. Decisions are based on your cash flow and customer creditworthiness, so if your credit is less than stellar you may still be able to get advances for your invoices.
Because your customers pay us directly, what we care about most is that you are providing great service to great customers who are paying you.
Myth #4 – Invoice factoring will give customers the wrong impression.
Some business owners worry that using invoice factoring might send a message to customers that they are having financial problems or are not dependable vendors. Other business owners may be concerned that the third party contacting their customers about invoice payment will be viewed more as a collections service than an extension of their accounts receivable team.
The reality is that factoring is a common practice among countless successful businesses seeking to bridge the gap between paying suppliers and being paid by customers. Invoice factoring companies are obliged to send notification to your customers that they will be responsible for handling your invoices. However, a reputable firm like Summit Financial Resources respects your relationships with your customers, and we take special care to manage payment transitions smoothly and to handle all transactions with discretion.
As companies look to streamline their accounts receivable process and banks limit traditional lending options, invoice factoring offers a proven solution to providing the working capital small businesses need to grow.
Myth #5 – All invoice factoring companies are created equal.
It is easy to assume that all invoice factoring companies offer the same services, charge the same rates, and have the same contract terms. In reality, some factoring companies are better than others and there can be considerable differences among providers.
Not all factoring companies have the same policies, so it’s important to shop around, ask questions, and get the facts about the services provided by a firm before you decide to move forward. Once you decide on a working capital solution, review your contract carefully to understand what terms you are agreeing to and for how long.
When you choose Summit Financial Resources as your financing company, you are not only working with a lender but with a partner invested in your success. We offer support to help you manage your business finances, including services that work with products like invoice factoring such as helping to get your factored invoices paid faster.
Whether you are in manufacturing, transportation, distribution, or professional services, the ability to access financing quickly is crucial to your day-to-day operations. As a key component of your cash flow strategy, invoice factoring will get you the fast cash you need to pay suppliers, take on new orders, fund payroll, or jump on new business opportunities that come your way.
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Summit Financial Resources specializes in working capital financing for small to medium-sized businesses that need increased cash flow. We provide working capital financing through invoice factoring, asset-based lending, inventory lending, and equipment financing.