While invoice factoring can be an outstanding funding solution for small businesses and startups who need to improve their business cash flow, it can also come with a myriad of pitfalls if you do not handle the funding properly. Here at the Commercial Finance Group, we are passionate about ensuring our clients have access to the ideal funding solution for their needs and that they utilize this funding properly to grow their business. Before you opt for factoring services, be sure you prepare ahead by avoiding the following common five mistakes of invoice factoring. Feel free to reach out to our team at any point with further questions about this flexible lending opportunity.
#1: Not Understanding Your Contract
One of the biggest mistakes you can make is not being clear on what you signed in your contract. The agreement you make between your company and the factoring company you choose will be vital. This agreement will contain valuable information, such as fees, requirements, penalties, and more. Understanding it fully will go a long way in ensuring you are equipped with the knowledge you need to best utilize your new funding.
When you do not take the time to understand your contract or you work with a factoring company who won’t spend time explaining the contract, you can be left frustrated. This is a big contributor to companies who believe factoring was a poor choice. Often, the lack of understanding about their contract is what led to frustrations and subsequent mistakes. Make sure your factoring company helps walk you through each component of your agreement so you can carefully create a plan for your business’ future.
#2: Failing To Keep Organized Records
It will be critical to your success that you keep pristine records throughout the entire factoring process. Ensure you have a staff member who can attend to record keeping and who will track exactly how the funding is being utilized and what progress is being made. Without clear record-keeping, you can wind up making mistakes with your funding or you can fail to provide valuable information to your factoring company that winds up costing you money in the long run.
Keep ongoing records and take the time you need to analyze the data provided. This information will help you continue to direct your company in the right path and will help ensure you make the right choices moving forward. Track fees, payments, and reserves carefully.
#3: Providing Faulty Information To Your Factoring Company
In order for you to build a solid and strong relationship with your factoring company, you need to ensure that all the information and data you provide them is sound. Providing faulty information can wind up costing you in the long run or might result in a rejected application. Be sure that as you prepare to work with a factoring company, you gather all the relevant information you will need and that you are confident in the accuracy of the data.
#4: Lacking A Plan For Your Future
You don’t necessarily want to utilize factoring for a long period of time. While this funding method can serve as an excellent bridge back to bankability, it is best used as just that — a stepping stone. Make sure that you create a solid plan for your future so that you can utilize factoring in the best way possible for your business. Be sure too that the company you work with does not lock you into a ridiculously long contract. By looking ahead, you can make the most out of your improved cash flow without becoming trapped in an endless cycle of selling invoices. When paired with a forward-thinking plan, invoice factoring does not need to be a forever solution.
#5: Working With The Wrong Company
Lastly, even the best plans you make will be thwarted if you work with a shoddy factoring company. Be sure you only work with the very best factoring company to ensure you receive quality services. A good company will be transparent about fees, they will work with you to tailor the funding solution to your needs, and they will be excellent communicators with years of industry experience. If you are interested in learning more about invoice factoring for your small business, we invite you to reach out to our team at the Commercial Finance Group today. We can help you avoid these common pitfalls and more through our outstanding industry experience.
