Invoice factoring is a great way to improve cash flow for your business. However, there can be some drawbacks involved when implementing this tool into your accounts receivable processes. Read more to learn about the common problems businesses face when factoring invoices.
Payment History & Reliability – even though your business may be great about paying debts in a timely manner, some of your customers may not be quite as reliable. It’s important to take this into account before you consider implementing invoice factoring into your billing processes, as the finance company may consider you to be a higher risk.
Customer Relationships – growing your business has likely relied heavily on strong relationships that took years to nourish and build. Therefore, leaving the collections up to an invoice factoring company may prove to be much less personable, making your customers feel a bit mistreated. Take these vital relationships into account, as you will still need to rely on their business to continue growing.
Long Term Costs – while it may seem like a good idea up front, invoice factoring could actually cost you more in the long run. For example, most invoice factoring institutions will not require a cost to get started. However, the longer your invoices go unpaid, it may end up costing you more down the road. Try to consider invoice factoring as a short-term option for growth, rather than a long-term solution.
Varying Offers & Qualifications – because invoice factoring is not heavily regulated, the offers you receive could seem biased or even discriminatory compared to what may be offered to one of your competitors. If invoice factoring is a route you intend to take, be sure to shop around for different offers that may be available for your industry. Also, be sure to research other customer reviews, experiences, and recommendations to ensure you receive the best treatment for your cause.