Common Misconceptions About Factoring Companies in New York

January 11, 2023

Factoring is the commonly misunderstood practice of buying and selling invoices that have yet to be paid. For businesses that need a steady flow of cash but have to wait for monthly invoices to be cash solvent, partnering with a factoring company can be a lifesaver by ensuring that, for a small fee paid to the factoring company, there is always cash on hand.

Below, we’ll address seven common misconceptions about factoring companies in New York. With a clearer understanding of the function and purpose of factoring companies, you will be better equipped to decide whether taking on a factoring partner is the right decision for your business.

7 Misconceptions About Factoring Companies

  • Fees are due before invoices are paid.

In a properly insured and established factoring company, you won't pay any upfront fees. You will receive most of the invoice amount as an advance. Once paid, a service fee is taken from the invoice, and the remaining portion is sent to the client.

  • Factoring invoices is an all-or-none proposition.

There is a common, inaccurate expectation that for a business to use a factoring company, they must always send every invoice (or every invoice for a specific client) to be factored. This is not true! All factoring services are different, but most are dedicated to excellent customer service, which means offering flexible terms for what you factor and when.

  • Factoring Companies in New York delay collection to charge you fees.

As with any customer-facing business, it is in a factoring company’s interest to keep their clients happy. To that end, most factoring companies endeavor to accelerate payments, facilitate easy payment by those being invoiced, and help streamline your back-office processes.

  • Customers don’t like when you use factoring companies.

Old preconceptions in small business are changing, so much so that today, working with a factoring company indicates that a business owner is invested in keeping their processes running smoothly by outsourcing their invoicing. Having streamlined billing and more comfortable customer payment terms benefits any small business.

  • Poor credit history means a business won't qualify for factoring.

Factoring companies will primarily look at the credit worthiness of the clients being invoiced and the credit history of the small business in question. The creditworthiness of the business being invoiced is the primary concern of a factoring company.

  • It’s better to pursue a business line of credit or bank loan than hire a factoring company.

Although lines of credit and bank loan rates may be lower, small businesses with atypical cash flow needs may need an atypical financial solution. Factoring companies in New York can help small businesses in ways that banks don't by

  • Offering immediate cash flow solutions
  • Providing same-day cash
  • Working with businesses that won’t qualify for a bank loan,
  • Offering solutions for companies that don’t want to take on debt or who are growing quickly and seek greater financial leverage than a bank is willing to offer.

  • Factoring is only for struggling businesses.

Because factoring is a fast cash solution for businesses, it has unfairly earned the reputation of being a last-ditch savior for companies who cannot get credit, or whose rapid growth prohibits them from qualifying for the loan they need. The reality is that factoring streamlines financial processes and allows small businesses to have cash in hand when they need it most.

Factoring Companies in New York Offer Small Business Solutions

By partnering with factoring companies in New York like BP Financing, you are setting your small business up for success. BP Financing clients benefit from speedy payment, financial protection, no extra debit, and dedicated customer service. When you’re ready to boost your business with factoring experts, get in touch with BP Financing.