4 common mistakes people make about factoring

Posted: 15th November 2016

There are quite a few misconceptions about invoice factoring and many of these are due to a lack of knowledge and misinformation. We explain 4 common mistakes below:-

1) Using credit control from a factoring company will upset your customers

One of the ways factoring companies improve your cash flow is by providing a professional credit control and sales ledger management service. They typically tailor this around your needs and act like an extension of your business, freeing up your time to focus on other important business matters.
Factoring companies employ knowledgeable credit controllers who are experienced at building rapport with your customers and ensuring prompt and accurate payment of invoices.

It is in the interest of the factoring company to provide a courteous service and the last thing they wish to do is upset any of your customers. Remember they are experts at what they do and want to support you and your business as much as possible.

2) Only businesses who have problems use factoring

Generally factoring companies are not interested in lending to businesses that are failing, rather they look to lend to rapidly growing businesses, which is where factoring really comes into its own.

Unlike other forms of business finance, invoice factoring grows with the business, so as the turnover increases, so does the borrowing amount. That means more sales = more invoices = more funding available. A successful and growing business using invoice finance will accelerate cash flow and be in a strong position to fund their growth.

3) Your customers won’t work with you if you use factoring

As mentioned above most businesses use invoice factoring to fund their growth, expand and take on new projects, certainly not to rescue the business from failure.

With invoice financing breaking the £20bn barrier for the first time this year, the volume of businesses using this flexible solution is increasing. It has therefore become commonplace for your customers to submit their invoice payments to factoring companies, most of which will already be used to doing this for their other suppliers.

When you start to use factoring, the factoring company will send a courteous letter to your customers advising that due to growth you have been approved for a factoring facility. This notification letter acts to reassure your customers that nothing will change apart from the bank account where they send invoice payments. The letter provides details of your Client Manager and Credit Controller should your customers wish to get in contact with your team and remind them that your business relationship with them has not changed.
Your customers view this small change in a very positive way, knowing that they are dealing with a supplier that is well-funded and successful.
Factoring companies also offer a confidential service, if for any reason you feel this would work better and in this scenario your customers are not made aware of the factoring company.

4) Factoring is expensive

The cost of factoring is competitive when compared against other forms of business finance.
If factoring gives you the working capital you need to grow, then the additional revenue and profits that this brings will outweigh any costs.
For example, would you invest 2% to generate a 35% increase in sales? As long as your current net profit is greater than the proposed factoring cost; the additional business you can transact by factoring will definitely provide you with more profit.

If you are new to invoice factoring and considering the options please contact us today on 020 3555 4545 for some friendly advice.

Alternatively, if you are already using invoice factoring and would like to explore other options, please do get in touch and speak to our experts today.

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