Accounts receivable financing, or factoring, is a common funding option for businesses with outstanding invoices. Factoring is a type of loan in which you sell your invoices to a lender to receive working capital. This loan bridges the gap between the delivery of products and payment of invoices. A factoring company, or lender, isn’t as concerned with your business or personal credit history. The customer’s credit is more important. New businesses with unpaid invoices can take advantage of factoring without giving up equity or taking on more debt.

Factoring should fit into your overall business goals. If you don’t use the capital wisely, it can hurt your business. If you’re considering factoring as a way of getting working capital, don’t make these mistakes.

Forgetting to Read the Fine Print

Not all lenders are transparent. Some factors charge hidden fees so that they can offer a low introductory rate. Always go through the entire contract and understand the fine details to know exactly what you’ll be charged when you factor your invoices.

Failing to Direct Payments to the Lender

When you factor your invoices, the customer should be paying the lender, not you. It can be difficult to explain to the customer, but it’s important to let everyone know where they stand. You don’t want to lose trust in the factor. Plus, you may owe additional fees if you do not direct payments to the factor.

Submitting Purchase Orders

Accounts receivable financing is much different than purchase order financing. When you factor invoices, you cannot use a purchase order. Your lender may offer purchase order financing, but you do have to apply.

Affinity Capital Funding offers to factor to businesses who need creative funding options. Grow your business when cash flow is stagnant by using accounts receivable financing. Contact us for more information.