Common Misconceptions about Factoring

Introduction

Factoring is a popular financing option that has garnered considerable attention among small and medium-sized enterprises (SMEs) looking to enhance their financial flexibility. It has proven to be a crucial tool that allows businesses to manage liquidity constraints, overcome financial restrictions, and plan for the future. Despite its widespread use, there are still many misconceptions about factoring and how it can benefit companies. In this article, we will address some of the main concerns you may have about factoring and provide clarity on how it can strengthen your business.

Myth #1 - Factoring is Expensive.

Factoring is often a more cost-effective and convenient way to optimize cash flow without the need to take on new debt, offering an alternative to expensive conventional loans. It is essential to consider the long-term impact on your business. At Aequitex, the annual fee for sellers is only CHF 240 (payable for the first time upon the first successful sale of an invoice through Aequitex). In addition, there is a risk discount on each individual invoice, which is calculated individually based on the creditworthiness of the debtor, industry, invoice amount, term, etc., and typically ranges from 1.5% to 10%. There are no additional fees.

Myth #2 - Factoring is Complex and Time-Consuming.

Some may think that factoring is a complex and time-consuming process. In reality, it is a simple and fast way to access working capital, especially through Aequitex, the digital factoring marketplace. Registering on our platform as an invoice seller is straightforward and usually takes no longer than 10 minutes. Our platform is user-friendly, processes are 100% digitalized, and in 4 simple steps, you are ready to have your invoices pre-financed through Aequitex. Here is a guide to the registration process.

Myth #3 - Factoring is only meant for small, start-up companies.  

While selling outstanding invoices is beneficial for start-ups to grow faster, factoring is used by companies of all sizes. Many well-known companies recognize its benefits and use factoring instead of traditional loans to pursue their growth plans. We work with a variety of small and medium-sized enterprises, and there are many different reasons why companies turn to factoring.

Myth #4 - Factoring is a Loan

Factoring is not a loan. You sell your receivables to a third party at a discount in exchange for earlier payment. Unlike a loan, there is no debt involved. You simply receive the amount of your invoices, minus a risk discount, deposited into your account within 24-72 hours, instead of waiting 30, 60, or 90 days for your customers to settle their invoices.

Myth #5 - Traditional Bank Loans Are Better

Factoring is often a better solution for many small and medium-sized enterprises. While bank loans may sometimes offer lower interest rates, factoring provides benefits that traditional banks cannot offer. Using traditional bank options means more paperwork, rigid requirements, and long waiting times. Factoring is a better solution for those seeking quick approval, fast liquidity, flexibility, and wanting to avoid additional long-term debt. To learn more about the differences between factoring and traditional financing, visit our article titled "Aequitex Factoring vs. Traditional Financing - Pros and Cons."

Myth #6 - Factoring is often the last resort for companies facing bankruptcy.

Factoring can be a solution and a strategic financing option at any stage of business growth. Most companies choose factoring because of the flexibility it offers when quick liquidity is needed.

Myth #7 - Loss of Control with Customers

Business owners may be concerned about losing control over customer relationships when a third party is involved.

At Aequitex, we offer recourse factoring, which means it is possible to place your invoices for sale on our platform without notifying your customers. The default risk remains with you as the seller and does not transfer to the factor/investor who purchases the invoice through Aequitex in this case. In return, factoring fees are usually lower than with non-recourse factoring. This option provides you with some flexibility and may be attractive to companies with solid receivables and good credit management.

Summary  

Every business relies on cash flow to sustain and grow operations. Maintaining liquidity largely depends on your customers paying their invoices on time—or even better, early—but this is not always the case. Pre-financing your invoices through Aequitex is a powerful and debt-free way to optimize cash flow, save time, mitigate risks, and invest in your company.

Factoring with Aequitex is revolutionizing the landscape of corporate finance. It offers a multitude of benefits, making it a viable option for companies looking to increase liquidity, save time, and invest in long-term success. Factoring can empower companies of all sizes to make informed financial decisions and promote their long-term growth and resilience.

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