Tax refund anticipation vs factoring Keeping a consistent cash flow for your business can be challenging. Whether you’re a new start-up or an established business, it’s possible that cash is tight some months and you struggle to meet all your financial obligations.

Problems arise when you can’t make your payroll, keep inventory on your shelves, or have to turn away profitable projects or supplier discounts because you don’t have cash on hand. When you’re stuck waiting 30, 60 or even 90 days for your clients to pay you, your company suffers.

Two ways that businesses attempt to fill the funding gaps is through tax refund anticipations and factoring. These are very different approaches, with different costs for the business owner.

Tax refund anticipation loan

So-called “instant” tax refunds have become increasingly popular over the past few years. Companies that prepare income taxes for businesses are actively marketing these quick cash solutions, which give businesses their anticipated tax refund within a couple days, instead of a couple weeks.

The business then repays the loan, plus interest, when they receive their IRS tax refund. The interest rates can be high, making this an expensive option. If you are able to wait just two weeks or so, then you can file your taxes when you’re ready, either by yourself or with your own accountant, and save the interest costs on this once-a-year loan.

Factoring as an alternative to tax loans

Factoring is a more sustainable, cost-effective alternative because it gives you instant access to your cash year-round. When you factor your invoices, the factoring company will turn your accounts receivable into cash, usually within a day or two. Factoring your invoices brings you additional benefits.

  • Avoid incurring debt: Because factoring pays you in advance for work you’ve already completed, you are not taking out a loan and you are not taking on any debt.
  • Let the professionals handle your collections: A good factoring company will have skilled staff collecting on your invoices, saving you time and money.
  • Enjoy peace of mind, regardless of your credit history: Factoring is quick and easy with minimal paperwork. Plus factoring companies approve your application based on your clients’ credit-worthiness, not your credit report or collateral.

Why wait 30, 60, or even 90 days to receive the money that is due to you? Interstate Capital offers you an excellent and affordable alternative to tax loans – and can pay you right away on your invoices. Contact us for an instant factoring rate quote today.

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