Invoice Factoring Mistakes to Avoid

It can be a miserable experience as you are waiting for a long time for your customers to pay. This could even be a serious problem for the cash flow of your business. But the good news is that invoice factoring is a good option, as it will provide you with the opportunity to receive a cash advance in regard to invoices that are not yet paid. However, it is to be noted that this system does have some complexities. Therefore, it is important to be aware of key mistakes to be careful to avoid.

1. Not being informed of the fees in the fine print

It is important to read the fine print regarding the fees pertaining to the issue of invoice factoring. This means that you need to check if there are any additional fees above the factor rate. When you decide to use invoice factoring, you, in essence, are selling the invoices that are unpaid for a discounted rate to the factoring company which will provide you with a cash payment instantly.

2. Payments that are misdirected

It can take a while to comprehend how factoring functions. As a result, an error that tends to be prevalent frequently is the fact of payments being misdirected. In other words, the business receives payments that really should be directed to the company that is providing the factoring service. When you choose to use a factoring service, it is necessary to designate the setting up of a new bank account in order to ensure the redirection of payments to the company that is providing the factoring service. It is necessary to inform customers which account they are to make their payments to. If there is a mix up in payments going to the wrong account, the company that is providing factoring service may charge you some extra hefty fees for such mishaps.

3. Purchase orders that are submitted

It is wrong to submit a purchase order to the company that is providing the factoring service. This is due to the fact that a purchase order is not an invoice. Purchase orders only show a representation of products and services that have not yet been provided to the customers. A purchase order is only a sort of commitment to buy particular products or services, but no payment has yet been made for the item. Therefore, not revenue is yet owed, which is why the purchase order cannot be processed by the company that is providing the factoring service.

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