The world of small business loans is rife with misconceptions. Far too many business owners are still under the impression that banks are the only viable source of considerable funding and apparently have no idea that countless competitors have utilized alternative business financing to obtain capital for game-changing investments. They might be familiar with some of the business funding programs offered by companies like United Capital Source but only their initial versions, which were designed for the benefit of the lending institution, not the business itself.
One of these frequently misunderstood programs is accounts receivable factoring, or the act of selling a certain amount of your existing invoices at a discount to a factoring company. The first accounts receivable factoring (a.k.a invoice factoring) programs were generic and stringent, resulting in a stigma that, as any UCS client will tell you, couldn’t be further from the truth.
Here are 5 misconceptions about accounts receivable factoring:
1. Accounts Receivable Factoring Is A “Last Resort”
This is 2017. Lending institutions and factoring companies, or “factors,” do not do business with companies that are veering towards failure. This fallacious notion likely stems from the long-standing tendency to confuse “failing” with “growing,” particularly in regards to younger businesses. In the past, a barrage of financial speed bumps might have spelled death for a cash-strapped business but accounts receivable factoring is one of several ways these businesses can keep serving their many loyal customers.
Critics of accounts receivable factoring are probably the same people who criticize a less than perfect credit score, which is not necessary for accounts receivable factoring as well as a merchant cash advance and other specially-designed bad credit business loans offered by United Capital Source. Business owners with bad credit might seem irresponsible on paper but we have found that these three digits are in no way an indicator of poor revenue or an inability to pay off debt. It’s the credit of your customers that matters when your application for accounts receivable factoring is being processed.
2. Customers Will Find Out You Sold Their Invoice
Traditional factors might do this because, unlike companies like United Capital Source, they are more focused on drawing a profit rather than making it easier for your business to grow. But we will not tell your customers or patients that you sold their invoice. Yes, we will be collecting payments from the customers on your behalf but we are well-aware that the way we collect reflects upon you. The relationship you have with your customers will remain exactly the same, as the process of turning the invoices over to us is incredibly simple. In fact, there’s a good chance you’ll come ti find out that some of your customers are already sending payments to other factoring companies as well.
3. The Factoring Company “Chases Down” Your Customers
Once again: This does not happen if you choose United Capital Source as your factor. You’ve probably read tons of articles online about factoring companies viciously pursuing your longtime customers for payment the moment the invoice is sold, ruining your reputation and giving the impression you are desperate for cash. At United Capital Source, we genuinely care about the future of your business and will therefore only allow you to factor the invoices that are worth selling.
You know your customers: If the company needs to be “chased down,” the account won’t be sold. They will make their payments because they’ve done it before! Remember, you receive money up front when you sell your invoices, giving you the ability to offer customers even better terms now that you don’t have to constantly worry about having enough money to pay your bills.
4. Accounts Receivable Factoring Is Only For “Rough Patches”
While accounts receivable factoring is undoubtedly a great way to get through a financial pinch, it can also be continuously used to smoothen out cash flow over longer periods. Anyone who tells you the opposite has likely not gotten word that the program has changed and doesn’t have to result in the factoring company interfering in your relationship with your customers. Numerous clients of UCS finance new invoices at various intervals (monthly, bi-monthly, etc), and work out a schedule that fulfills months’ worth of financial obligations.
5. You Will Bleed Money With Accounts Receivable Factoring
You know what’s a much more effective way to lose money? Waiting over 90 days for your customers to pay up. You will lose a minimal amount of revenue with accounts receivable factoring but this is nowhere near as much money as you’d lose if you allow too many accounts to go unpaid when you need cash now. No one wants to have to dig into operational or personal funding, pass up opportunities to sign large accounts, refrain from filling important positions, or waste precious time trying to collect from customers. The more time you spend without getting paid, the lower your profit margin gets.
We assure you that our accounts receivable factoring program is wildly different than anything you’ve heard. The benefits of being able to make investments or pay regular business expenses on time are endless. Throughout your long-term partnership with United Capital Source, you will eventually position yourself to experience every single one!