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