Everything you need to know about
Accounts Receivable Factoring


Factoring vs bank loans

Accounts receivable factoring and bank loans are both excellent sources of funds for a cash-needy company, but there are major differences between them.

  • With factoring, the emphasis (and scrutiny) is on your customers’ invoices, not on you.

  • Factored funds can be available much quicker than bank loans, usually in days.

  • Factoring provides a steady predictable flow of funds, bank loans are usually one lump sum.  You don’t want to pay interest on funds you are not using.

  • Factoring rates are higher than bank rates, but factoring can provide opportunities that can compensate for that.

  • Factoring can produce significant cost reductions, since Factors handle the credit and collection function.

  • Factoring improves your balance sheet.  Bank loans add debt, factoring just converts one asset (accounts receivable) to another (cash).

  • Factors provide credit information on customers, banks do not.  This allows you to be more selective when you sell.

All that said,  possibly the most important over-riding consideration of all in the current credit crisis...  Bank loans are difficult, almost impossible, to get.  Factoring funds are freely available.

Next: What to look for when choosing a factoring company