If you sell products and services to other companies, waiting for your customers to pay up can affect your business’ cash flow. The good news is that invoice factoring can help you access a cash advance on outstanding invoices. However, this system can be complicated, and mistakes can be costly. Here are some of the mistakes you should avoid:
Failing to Read the Fine Print
Just like with other financial agreements, you should read the fine print before committing to this type of financing. This will not only help you to know the factor rate but also identify any hidden fees and charges that will push up the cost of borrowing.
Not Directing Money to the Factoring Company
While factoring has been around for years, some business owners do not understand how it works. This means that some people may receive payments from their customers instead of directing them to the factoring company. This may result in additional fees and affect your relationship with the invoice factoring company.
Submitting a Purchase Order
There are business owners who present purchase orders instead of invoices. However, it is important to note that orders cannot be factored since they represent products or services to be delivered as opposed to revenue owed to them. This is why it is necessary to familiarize yourself with how the process works before seeking financing.
Ignoring the Time Needed for the Paperwork
In case the factoring company takes over the collection of the outstanding invoices, it may be necessary to do some paperwork. Although this does not directly translate into additional costs, the time it takes can be an opportunity cost for business owners. As a result, you should consider this when choosing a financing partner.
Other common mistakes people make include choosing invoice factoring when they should have gone for invoice financing and using it as the only means of financing small businesses. If you would like to learn more ways of financing your small business, kindly contact Ambition Funding Solutions.