Invoice factoring provides a useful funding tool for your staffing business. It lets you minimize risks and expand your growth possibilities. You just need to separate fact from myth in order to get the most out of this financing option.
Like most small and medium-sized businesses, your staffing firm faces occasional funding issues. Let’s face it: you’re often forced to run your staffing firm at the edge of your financial resources.
These represent common challenges for any up-and-coming venture. Too often, it’s just part of the game for small-business managers and entrepreneurs. Invoice factoring helps you overcome these obstacles.
However, some business owners are reluctant to grab this lifeline, held back by a few persistent myths. These misconceptions about invoice factoring can prevent entrepreneurs from taking full advantage of their funding capabilities.
This is a shame. Invoice factoring can help you manage cash flow and fund expansion. To understand this process entirely, here are five of the top myths about invoice factoring:
The 5 Most Common Invoice Factoring Myths
Myth #1: Invoice Factoring Is Too Complicated
Most small business owners have significant experience with loans and lines of credit. However, They might not have the same familiarity with invoice factoring. This can create an undue skepticism about the process.
Invoice factoring involves selling a portion of your outstanding invoices to a third party. You sell them at a discount, giving you an injection of cash. The factoring company will then collect from your customers, earning their profit from the difference between what they paid you and the amount they receive.
Through this process, you can speed up the realization of revenue. Inventory factoring allows you to meet near-term expenses (like an upcoming payroll). It can also provide the funding you need to jump on emerging opportunities.
Myth #2: Invoice Factoring Is a Niche Business
As we mentioned, loans and lines of credit have a wide acceptance among the general public. You won’t find many people who haven’t heard of those financing options. In comparison, invoice factoring might seem rare and exotic.
Not true. While the business has a much smaller footprint when compared to the market for business loans, it’s hardly a niche offering. In fact, experts at Grand View Research estimate the size of the factoring service market at more than $3 trillion.
Moreover, significant growth is predicted for the 2020s. The Grand View Research data point to a compound growth rate of 7.5% from now until 2027.
Myth #3: Invoice Factoring Will Come Between You and Your Clients
Because of the structure of the process, invoice factoring can feel like a separation between you and your clients. You worry that a third party will badger your customers for payment or otherwise hurt your brand.
Don’t worry about these problems. Yes, you should discuss the details with any factoring company before you commit to anything. But these firms are designed to facilitate your business. You’ll maintain your relationship with your customers.
Myth #4: Small Businesses Don’t Qualify for Invoice Factoring
Don’t assume your revenues are too small to merit consideration for invoice factoring. Because this funding process is less well known, many small-business owners don’t see it as an option. They assume it only exists for larger firms.
That’s not the case. Different funding firms indeed have different policies. But, in general, you shouldn’t count yourself out because of your size or because you lack credit. Talk to firms about your situation and gather the information you need to make the right decision.
Myth #5: Using Invoice Factoring Shows Weakness
Sometimes, business owners get the impression that invoice factoring is a last-resort option. They see it as a kind of corporate equivalent to a payday lender. These skeptics feel they are admitting to weakness by turning to invoice factoring.
Remember: most businesses face challenges that require additional financial resources. There are about 28.8 million small businesses, and half of these admit to facing a cash flow issue in the past year. That’s more than 14 million businesses that could benefit from invoice factoring in any given year.
Invoice factoring resembles a collateralized loan. You have an asset (your pending invoices), and you use that to obtain funding. That doesn’t show weakness. It shows you know how to get the most out of your limited resources.
Take The Next Step! Frontline Funding Can Help!
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Contact Frontline Funding today to learn more.