Are These Factoring Myths Hurting Your Business?

 Some of the businesses which would most benefit from invoice factoring avoid it as a funding source because of common misnomers. The result is that these business owners turn to more expensive and less advantageous funding sources. 

It could be very important for your business to consider factoring! We'll assess the most common myths about invoice factoring so that you can make a better assessment as to whether it is a strong option for your business.

1. You Have to Factor All of Your Invoices

When you work with a factoring company, you agree upfront which of your invoices you’d like to factor and which you do not. While some factoring companies will only agree to work with you if you factor all of your invoices, others are more flexible. This is a term that is up for negotiation, and not set in stone.

2. You Have to Pay Factoring Fees Upfront

You pay a fee for factoring, and it is usually a percentage of the total invoice. You don’t need to pay this fee before you submit an invoice. Instead, the factoring company takes their fee out when they send you the money for your invoice. This means that you only pay it when you have cash or, more accurately, when you get cash.  Indeed, the factoring company doesn’t make any money until they actually collect payment on the invoice.

3. Factoring is More Expensive than Bank Financing

While some bank financing options could be more affordable than factoring, you shouldn’t assume that factoring is necessarily more expensive. Bank financing could end up costing you more down the road, especially if you’re getting large loans with long terms and/or high interest rates. The potential that factoring can limitlessly grow alongside you also trumps the potentially crippling wait for bank financing increases. With factoring, you don’t have to miss out on opportunities waylaid by bank financing because factoring focuses on the credit of your customers rather than your own personal credit. Most factoring companies also work much more quickly than banks, so you'll get the financing and related paperwork approved much faster. This is critical because we all know that time is money! Work out the numbers for yourself to discover which is the more affordable option for you.

4. Your Business/You Probably Won’t Qualify

Your personal credit might matter much less than you think when you’re applying for factoring. Your business’ financial state may also matter less than you think. Most incorporated businesses and especially most B2B companies will qualify for invoice factoring. That’s no guarantee, but it is certainly worth looking into instead of assuming you will not qualify.  

5. You Can No Longer Choose Your Clients

You worked hard to make a business where you’re in control, and you don’t want to make any decisions to undermine that. Many business owners worry that the factoring company will have undue influence in their business. The most control a factoring company can exert is saying that they are unwilling to factor invoices from a certain client. You can still work with that client.

In fact, most business owners find that with a stable cash flow from factoring, they actually feel more control in their business and better positioned to make the critical decisions that they need to.

6. Factoring is Only for Struggling Businesses

It’s true that many struggling businesses turn to factoring to bolster their business and survive hard times. It's also true that many successful businesses also turn to factoring to help them grow, function more efficiently, and achieve their goals.

Do you want more factoring facts? Reach out to JD Factors today to discuss if invoice factoring is the right option for your business. 

Negotiating Terms? Avoid These 4 Common Mistakes

The biggest mistake a small business owner can make when they are working with a bank is to think that the terms the bank presents are non-negotiable. The truth is that you can and should ask for a better interest rate or other more favorable credit terms. However, small business owners who are not used to negotiating these important financial arrangements often make mistakes. 

Here are the common mistakes you need to avoid in order to get the best terms when negotiating credit with a bank.  

1. Avoid Being Intimidated 

It can feel daunting to negotiate with such a large organization, and one that has so much power over the future of your business. But remember that there is more than one bank out there and the others want your business too. There is no reason to be intimidated by the bank or the people you speak to there. The person negotiating for the bank is not all-powerful and is a person, just like you.

2. Do Your Homework

Why do you deserve better terms? Just wanting them will not be a compelling enough reason. You should demonstrate the reasons that your business is more likely than average to pay back your loans or to be a good customer to the bank over the long term. Arrive to the meeting aware of all the information that may be important to bring up. Discuss your credit rating, the future prospects of your business, or the kind of investment you’re making with the credit the bank is offering you, if any of those facts would be compelling.

Whatever your argument, preparing it ahead of time will give you the opportunity to pull the numbers and make it more appealing to the bank’s representative. 

3. Listen to Build Trust

The bank will have its own reasons that the initial terms they offered you are acceptable. By listening to the representative’s counter arguments and perspective you gain valuable insight about which terms the bank might be more open to negotiating and what they would need to see in order to offer you better terms where they currently cannot.

Perhaps the bank is inflexible on the interest rate, but more flexible on monthly payments or overall credit amount. By listening you can find opportunities. You’ll also build more trust with the bank’s representative, who will realize that you understand their perspective and will therefore be more willing to work with you.

4. Know What's Good Enough

It’s rare in any negotiation to get precisely what you ask for. You’ll walk into the negotiation knowing what you want, but you should also know where to settle. What terms would be good enough to get your business the credit it needs? When you know the bare minimum you’d be willing to accept you will know when you should walk away and pursue other options.  

If the negotiation doesn't go well, keep in mind that you have other financial options available to your business. Invoicing factoring is a great option, particularly if your negotiations with the bank don’t fare well. Reach out to J D Factors to learn more about this alternative option.

Bankers Use J D Factors as a Short Term Solution for High Risk Clients

As a financial institution, are you serving your small and medium sized business customers as well as you can? How many potential customers are you turning away because they don’t qualify for financing? The solution isn’t to lower your standards, but to help businesses qualify for your services. You need a short-term solution that can get your potential business customers on the right path.

Factoring may be part of that solution. Factoring can give your clients the healthy cash flow they need to improve their credit, pay down their debt, and eventually qualify for your financing or other products. Everyone benefits: your small and medium business clients get the financial support they need, and you gain a new client who is grateful for the past assistance you provided.

How Factoring Helps Your Clients

Do you find you have clients that you’d love to help, but their credit score, debt, or other aspect of their business disqualifies them? You can still help these clients by pointing them to another option: accounts receivable financing, or factoring.

With factoring, your clients will receive the money they invoice for immediately. This can help them build a positive, healthy cash flow they need to make the investments required to support hypergrowth or otherwise improve their business.

J D Factors goes a step further and offers non-recourse factoring. This means that we take on the risk of bad debt and don’t demand money back from our clients, even if their customers never pay. So, if you have a potential client whose financial troubles are partly due to their unreliable customers, non-recourse factoring can help them eliminate that risk and start to recover.

How Suggesting Factoring Helps You

As a bank or financial institution, your loans will always be in demand. It’s just a question of whether those who want your financing are eligible for it. Factoring is the perfect way for you to help new clients qualify for your services.

Factoring doesn’t have to compete with bank loans. Chances are, the clients you send J D Factors will continue to use factoring until they are ready and qualify for traditional financing with your organization.

You should also recommend factoring to your clients because when you show your potential clients that they have other options, they trust you. You demonstrate that you care about their business, even if you can’t help them right now. That makes them much more likely to return to you when their business is in a position to take on a loan.

Further, when you send clients to J D Factors, we can give you a referral payment. If the customer you send us doesn’t work with you again, you’ll have earned something for your time helping them.

Contact J D Factors to learn more about how we can partner together, to strengthen small and medium sized businesses across Canada.