6 Mistakes to Avoid When Factoring Invoices

6 Mistakes to Avoid When Factoring Invoices

Invoice factoring can be an incredibly beneficial tool for businesses that deal with a substantial number of invoices. With this financing option, you get access to funds when you need them (minus applicable fees), rather than waiting for your customers to pay. While useful, the system can be complex. Here are some of the most common errors that business owners make and what you can do to avoid them.

1. Submitting the Wrong Paperwork

Some business owners submit purchase orders instead of invoices. Purchase orders don’t represent funds you’re owed; they’re a commitment to purchase something. You need to make sure that you provide the correct documents to the factor.

2. Forgetting to Direct Payments to the Factor

Many factors take over managing payments. With other companies, you need to direct the payments yourself. You may need to create a separate account or redirect payments and let your customers know which account they need to pay depending upon the invoices you choose to factor.

3. Skimming the Fine Print

As with any other financial agreement, you need to take the time to read the fine print. With invoice factoring, you sell your invoices at a discount. The company applies fees, which it deducts from the total you factor. Rates range from one company to the next, and some companies apply extra fees. It’s necessary to know and understand all of the costs related to your financing, so there are no surprises later down the line.

4. Using Only One Type of Financing

Invoice factoring is just one financing option available to business owners. There are several other options as well, including small business loans, lines of credit, business credit cards, and more.

While factoring your invoices makes sense in some situations, it’s always the best solution for all of your financing needs. Take the time to understand all of the options available to you and choose the best one based on your specific needs. While factoring might make sense in one situation, it might not make sense in another. Do your research and compare your options so that you can more effectively choose the best financing solution for you.

Waiting for your customers to pay their invoices while watching your cash flow grow thinner is stressful. Invoice factoring can help. Avoiding these mistakes can help to ensure the process goes smoothly and you get the financing you need for the success of your business.