What are some of the frequent objections to using receivables factoring?
1. Costs too much – compared to what? Being able to accept and perform on a contract as opposed to passing on it because the working capital crunch would be too difficult? The cost of funds is relative to the ability to do a job and keep all your bills paid. The actual cost of factoring is the same or less than what a credit card issuer charges when you accept payment using the card.
2. The APR is too high – that’s because people confuse an Annual Interest Rate with a Factoring Fee which is better described as a service charge. First, the money is not owed for a year, this is short term capital. Second, the factor is providing services beyond the cost of funds.
3. My customer will know – yes, they will. Factoring requires that the customer gets notified that you have “assigned the proceeds of an invoice.” This means you are giving the customer permission to pay the invoice directly to the factor. So a factoring company is willing to provide your company with commercial financing – it could be worse – you’ve been turned down for factoring. The customer knowing is a perception issue, that’s all it is. If you handle that perception as a positive step in your companys’ development, then the perception remains positive.
If you have any other objections, please let me know and I’ll be sure to add them to this list.