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Cash flow management is a common issue among many businesses, and unfortunately, not being able to manage your cash flow effectively can be detrimental for your company’s long-term health and growth.
Even if you are seeing a positive development across many financial metrics, there are multiple reasons why you may need help generating enough cash - from struggling to collect payments from several huge creditors to allowing many creditors too much credit.
This is where invoice factoring comes into play - it can be a great way to tap into your company’s potential revenue without waiting, allowing you to access cash quickly even if your invoices haven’t been paid yet.
But what exactly is invoice factoring, and what are some of the most common myths surrounding it? We will uncover everything in this article - let’s take a look at some of the biggest invoice factoring myths:

What Is Invoice Factoring?
Before we get into the invoice factoring myths, it’s important to understand what invoice factoring exactly is. This type of financing allows you to sell your outstanding invoices or accounts receivable to a third-party company called a factor or factoring company. You will receive immediate cash from the factor, typically a percentage of the invoice value, instead of waiting for the invoice to be paid by your customers. The factor, on another hand, takes over the responsibility of collecting the payments.How Is Invoice Factoring Different From a Loan?
Invoice factoring is different from a traditional business loan in several ways:- Structure & Process - Invoice factoring involves selling your accounts receivable in exchange for immediate cash, while a business loan lets you borrow a fixed amount of money from a lender, and agreeing to repay it over time with interest.
- Ownership & Liability - When you factor an invoice, you are essentially selling your right to collect payment on that invoice to the factoring company - this doesn’t add debt to your balance sheet. However, a business loan adds a liability to your balance sheet because you are borrowing money that must be repaid.
- Qualification Criteria - To get approved for invoice factoring, you will be assessed primarily on the creditworthiness of your clients, not your business. Factoring companies are more concerned with whether your clients will pay their invoices. Traditional loans, however, require a thorough evaluation of your business.
- Cash Flow & Speed - Invoice factoring provides immediate access to cash, usually within 24 to 48 hours after submitting an invoice. Business loans tend to be more time-consuming unless you are applying with NBC - we can get you approved and funded in as little as 24 hours as well!
- Flexibility & Use - Factoring is highly flexible, allowing you to choose to factor only specific invoices or clients depending on your cash flow needs. However, traditional business loans are less flexible - once you secure the loan, you are committed to a strict repayment schedule.