Customer Misconceptions About Factoring

Strong GDP numbers are a great indicator of economic growth. This has been the case with the Canadian economy. Almost all sectors have contributed to the growth story of the economy. There was a time, when trucking or freight companies, solely carried a significant burden of the economy.

Today, with changes in government policies, broader business horizons have opened up for all sectors. Without a doubt, we all would agree that no matter how strong trade flow is, payment processing cycles are always expected to be slow. With changing times, there is a solution called invoice factoring. Although factoring, accounts receivable financing is a well-accepted trend, customers still have certain misconceptions about factoring. Here is a list of some major customer misconception:

Factoring is a Loan
Factoring increases debt
Factoring is a risky affair
Factoring is an expensive service

Most customers have this common misconception about factoring – that it is a type of loan. However, this is not correct. In order to clarify this, let us have a look at how factoring works. It works on a simple premise.

1. As a seller, you sell goods to your customers on an agreed upon price. You also issue an invoice for the same.
2. Now, the buyer may not be able to pay the invoice until the goods are delivered to the retailer or the end consumer. As such, you need to wait for payment clearance.

Now, this is where and factoring company can help. You can outsource your invoices to the factoring company. The factoring company will do a credit check of your buyer and then pay you approximately 90% of the invoice amount. The rest, minus a nominal service fee, will be paid once the invoice is paid. In a nutshell, all you’ve done is outsourced your invoice. The service allows you to get liquidity for your business without increasing debt.

Factoring reduces risk. Once you have outsourced the invoice to the factoring company, it becomes their responsibility to see the invoices are paid. The service contract ensures that once the bills are outsourced, you are no longer responsible for their collection.

Accounts receivables financing is not expensive at all. At the end of the day, you get instant cash of about 90% of your invoice. In normal circumstances, you would have to40 to 60 days.

If certain misconceptions about factoring are made clear, then it is plain to see that factoring is on one of the best service any business can have at their disposal.

To learn more contact Accutrac Capital a Factoring Company serving Canada.