Heard a lot of things about invoice factoring? What is the truth? – August 11, 2017

Debunking Invoice Factoring Myths

by Peyton Thompson
Business Development and Marketing at Allied Affiliated Funding

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Myth 1: The only businesses that use invoice factoring are those in serious financial trouble.

Truth: Factoring can be a positive option for all types of companies. Factoring is a valuable financial tool that provides cash flow quickly for growing businesses, not necessarily for companies in financial trouble. Factoring is also perfect for start-ups that don’t have enough history yet to apply for a bank loan. Accounts receivable financing provides companies with the support to grow their business, purchase new equipment, meet payroll, and cover other operating expenses.


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Myth 2: Factoring is VERY expensive.

Truth: Factoring fees can be minimal and quite affordable; often times a percentage point or two of your invoice amount. Many companies often give that same amount away in the form of a prompt pay discount (ex: 2%10/Net 30), but somehow see that differently. During certain stages of a business’ lifecycle, factoring may be the best and lowest cost option. Using factoring as a financial tool to grow a business is much less costly than giving away equity in the business or passing up on a sales opportunity due to a lack of capital. Over the years, factoring fees have continually been decreasing and most companies are surprised to learn how affordable factoring truly is after receiving a proposal. For many companies, the benefit of receiving cash flow so quickly more than makes up for the small factoring fee.


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Myth 3: Customers get upset when they learn you’re factoring invoices.

Truth: Factoring can be beneficial to your customers. With factoring, customers will know that you have the financial support to meet their needs. Invoice factoring allows companies to spend more time with their customers focusing on building their relationship instead of spending that time collecting on invoices. This leaves much more time for companies to serve their clients and satisfy their needs accordingly.


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Myth 4: Factoring companies will harass your customers to pay their invoices.

Truth: Dependable and trustworthy factoring companies provide exceptional A+ customer service. Before entering into a relationship with a factor, get client references to find out how the factoring company works with clients and their customers. Many factoring companies take great pride in customer service, going the extra mile to act as a partner to clients and their customers. Good factoring companies want to keep their clients happy and know that taking excellent care of their clients’ customers is a crucial part to that equation.


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Myth 5: It can take months to be approved by a factoring company.

Truth: The truth is actually the opposite. Where traditional banks may take weeks or months to approve a loan, factoring is one of the fastest forms of financing and fund companies in only a matter of days. Allied Affiliated Funding works to approve new companies for a proposal within 24 hours and provide them their first funding within 5 business days.