Bank Loans vs Factoring

When you’re looking to raise working capital for your business and are exploring various alternatives, consider factoring – selling your invoices in exchange for instant cash. Many companies need to wait 30, 60 or 90 days for their clients to pay their invoices. With factoring, you don’t have to wait to use the funds that are due to you to buy new inventory, pay your bills or cover other overhead expenses.

Factoring allows you to efficiently grow your business with a steady flow of revenue. In addition, factoring companies can save you time by collecting on your invoices for you, so that you can focus on other tasks instead of debt collection.

How is factoring different than a loan from a bank?

Factoring your accounts receivable is very different from paying off a bank loan because you won’t be incurring debt, you don’t need collateral to apply, and you’re not judged on your credit history. Getting set up with a factoring company is invariably much faster than getting a loan from a bank. Here are some situations in which factoring can be better than borrowing from a bank:

If your business is new: Factoring can be beneficial for almost any type of business, new or old, but start-ups especially benefit. If your business hasn’t built up the equity and credit record that you need to get a loan, then factoring is a good alternative for you.

If you’re waiting too long to get paid by your clients: Whether you’re selling a product to other businesses or government entities or you are selling a service to corporate clients, it’s possible that you’re waiting 30, 60, or even 90 days to get paid. You have monthly expenses that need to be paid and invoice factoring can ensure that you get the money you need without waiting.

If you’re spending too much time on collections and invoicing: As your business starts to grow, you may notice that you can spend a significant amount of time processing invoices and following up on outstanding payments. This is time that you can use more productively. Whether you’ve hired someone to handle debt collections or you are currently doing this yourself, consider freeing up your time by partnering with a factoring company to take care of the job for you. this is a service that a bank won’t provide you.

If you can take advantage of greater discounts: If you’re a distributor, wholesaler, or importer/exporter, you could be able to take advantage of greater discounts if you have more cash on hand. Instead of borrowing from a bank, factor your invoices so that you have a positive cash flow that you can use for purchases.

For more information about factoring agreements and rates, get a free cash flow consultation today.