Accounts Receivable (A/R) Financing, or factoring, used in conjunction with long term debt management and equity financing can help growing businesses free up capital to acquire new businesses or expand existing business lines. While A/R Financing has been around for millennia and it’s a viable source of funding, many myths exist regarding factoring and it’s time to debunk them:
1. A/R Financing is for companies in trouble with no place left to turn:
The stigma of factoring as a last resort is perhaps the most egregious myth. Keen business leaders recognize the flexibility and quick turn around of factoring lines to solve working capital needs.
2. A/R Financing is very expensive:
If a customer agreed to pay you within 10 days of invoicing would you consider a 2% discount? If you would then factoring could be a powerful tool for your company’s growth. Typically you will pay even less than 2% on an invoice to a good debtor who pays within a month. Factoring that invoice gives your company more cash flow and is often cheaper.
3. Factoring carries a stigma and customers look down on it:
The current global factoring market is approaching $3 trillion showing the strength of factoring worldwide and its importance in growing a global economy. Strong debtors have probably already worked with A/R invoicing and recognize it as a tool used by savvy companies looking to capitalize on great short term capital opportunities.
4. Companies that factor lose control over their business:
Imagine freeing your time and not having to chase companies for collections. This leaves you more time to run and expand your company with less time and resources committed to cost heavy operations. The real question is can you afford not to use A/R Financing to be successful in today’s rapidly changing global and domestic markets. Using factoring as a stand alone financing option or in conjunction with other long term debt is a great way to balance a company’s growth with its security.