Accounts receivable financing, otherwise known as factoring is one of the oldest forms of commercial finance. It has been a viable funding source for a long time. Unfortunately, some players have created many myths—which are easily debunked.
Myth 1: A/R financing is only for troubled companies, which have no place left to turn for capital
Truth is, smart, savvy entrepreneurs commonly use the strategy to secure flexible and short-term solutions to working capital challenges. $120 billion in invoices paid by factors annually exemplifies that this is not a fad—but truly a viable and respected form of financing.
Myth 2: A/R firms charge exorbitant rates
In fact, factors typically charge less than 2% of the face value of an invoice to a credit-worthy customer who pays around 30 days. While this might seem high, ask yourself whether you would give a 2% discount to a customer who pays you inside 10 days. If the answer is yes, you should consider factoring—it is both cheaper and allows more control over your cash flow.