Sometimes, business owners are scared to try factoring because they think that it’s not a “legitimate” financing solution. The truth is that many well-established companies around the world factor invoices every day. They use this type of financing to improve their business’s cash flow and financial health. If you’re holding back because you’ve heard some things about invoice factoring that may or may not be true, this article can help you separate fact from fiction.

Myth #1 — You’re Locked Into a Lengthy Contract

Are you worried that you will have to completely change how you do business? You’ll be happy to know that factors generally only require clients to sign contracts for three to six months. These short-term agreements are a great fit for businesses trying out factoring for the first time. You can get a feel for the process and see whether you like the flexibility or not.

Afterward, many companies choose on their own to sign longer contracts. Why? Because a one-year or two-year contract is invariably going to give you even better rates. The point is that you’re still in control of your finances no matter what.

Myth #2 — Factoring Is Shady

This is a misconception that comes somewhat from Hollywood. Movies often portray alternative financing methods such as factoring as untrustworthy. But in reality, this type of financing is used by major hospitals, shopping centers, manufacturers, construction businesses, and many others. Virtually every industry takes advantage of invoices in this way to increase liquid capital as needed.

Of course, it is important to choose a factor you trust — the same as you would do with any lender. How can you tell? Reputable factors explain the terms clearly. They don’t have hidden fees. They answer your questions and help you choose the right option for your business. After all, they want to partner with your company for a long time.

Myth #3 — Factoring Is Expensive

Invoice indeed factoring costs more than a long-term business loan, such as SBA financing. When it comes to short-term, fast-approved financing, however, you’re not generally going to pay more for factoring than you would for other options. It’s comparable to or better than business credit cards, lines of credit, bridge loans, and similar financing.

The best part is that qualifying for factoring is far easier than getting approved for a conventional loan. Your personal credit score or business credit isn’t important as long as you have customers that pay on time. You can get the working capital you need to succeed.