5 Invoice Financing Myths Debunked

When small business owners are looking for alternative financing sources for their growing business, oftentimes they will overlook Invoice Financing because of the perceived myths surrounding it. However, invoice financing has been in use since the Middle Ages in Europe, and it continues to be an important source of financing for companies of all sizes.

Companies that use invoice financing today are typically healthy, growing businesses that have to abide by their large customers’ payment terms to do business with them. Turning these receivables to cash faster with invoice financing allows the business to hire more people, buy more inventories, or pay suppliers faster to receive discounts.
Here are 5 myths debunked:
Myth #1 – Expensive - “A rate of 1.2% per month equates to 18% annually. That’s a very high interest rate compared to what my bank will give me.”
Debunked – True, rates are around 1.2% per month. However, receivables financing with Payplant offers no origination fees, no prepayment fees or un-used line fees often seen with a bank line of credit. There is also no commitment; you can finance as needed. While the stated rate on a traditional loan may be lower, the terms and conditions of the loan may cost you more in the long run.
Invoice Financing allows you to take advantage of your customers’ strong credit, instead of your business’s credit score.
Myth #2 – Image - “A company that sells invoices is in trouble with traditional sources of credit, and needs alternatives to stay afloat. My customers may sense weakness and pull out.”
Debunked - Invoice Financing is a form of financing that grows with your business. Banks tend to look at the past and have stringent requirements and paperwork to get a loan. Financing your receivables actually keeps up with growing sales volume. Getting cash faster from Payplant for invoices is smarter for the business, making the company more flexible to meet the demands of its larger customers.
Myth #3 - Customers Relations – “I have been doing business with XYZ customer for 4 years and don’t want to jeopardize our relationship by adding a 3rd party for payment collections. A financing company will pester my customers for payment, which will damage the customer relations.”
Debunked - As entrepreneurs ourselves, Payplant understands that strong customer relations are the foundation of a business. As a fair funding partner, our goal is be as least intrusive as possible when verifying invoices and inquiring about payments. Vendor portals and email initiated by you while CC’ing our address in your communications with the customer are examples of how we operate behind the scenes.
Myth #4 - Too Young for Credit – “My startup has little to no credit history, and as a result we couldn’t get financing from a bank. Don’t Invoice Financing companies have the same credit requirements?”
Debunked - Invoice Financing is based on the credit of your customer. The customer is the one that pays the invoice, so Payplant will weigh heavily the customer, the contract and the business history with the customer. Large, Fortune 1000 companies and government entities are the best customers for a small business to finance because there is plenty of information publicly available on them, allowing the vendor to piggyback on their credit rating.
Myth #5 - Loss of Control – “All payments coming to my business are routed through a 3rd party. I lose control of my accounts with a factor. Plus I get tied into contracts that restrict my business rather than helping it.”
Debunked - True, payments need to be made by your customers directly to the financer’s account. This is done for security purposes; the invoice is collateral for the advanced funding, and they collect from the customer when they pay. Yes, that is an intermediary. At the same time, not all Invoice Financing companies are created equal.
With Payplant, only customers that you wish to finance must flow through the Payplant account. Any remaining balances due to you are sent via wire within one business day of receipt. Receivables from other customers that are not financed can still flow directly to you. Also, Payplant doesn’t tie you to any long-term contracts. You can sell the receivables you want, when you want, which works great for seasonal business or oversize orders.
Having to deal with a delayed payment cycle can strain existing resources and add unnecessary stress to a business owner. Getting past the myths of invoice financing can bring cash in the door faster and open new opportunities for many B2B and B2G small businesses. Apply now for Invoice Financing with Payplant.