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
|