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Bank Loans VS Factoring

One of the most common statements I hear people make is that factoring is more expensive than a bank loan. Not only is this like comparing the old saying of apples to oranges but that is exactly the case.

To begin with if a company can qualify for adequate financing from a bank and that is the best financial option for that company then that is obviously what needs to be done so no need even arguing the mute point. If a company is unable to get adequate financing from a bank then let’s take a look at the difference in the two.

1st. Factoring is not debt financing, you do not borrow money like you would from a bank. A factoring company actually purchases the invoice from your company, so the invoice is an asset you are selling. These invoices are obviously purchased at a discount so with that in mind it should not be compared to an interest rate from a loan or line of credit.

As an example some people will take the factoring fee, we will use 3% on 30 days for an example. 3% a month X 12 is 36% a year. That is like saying to a company that offers 2% net 10 discounts for early pays. With this same comparison you have about 36 10 day periods in a year so with 2% net 10 X 36 you have 72% a year. So as you can see the formula of comparing a discount to an interest rate gives you the wrong formula.


2nd Turnaround time for approval for funding from a bank can be long and painful. The bank has to get approvals and the underwriting has many hoops you have to jump through. With factoring you can get an account open and receive funding in as little as a week and then on future invoices you can receive funding the same day. Plus if you bring on additional approved customers you get funding on them just as fast.

3rd A bank typically wants to see at least 2 years in business and also requires you to have additional collateral along with your invoices along with a personal guarantee. A factoring company can provide funding to start up companies as long as their customers are credit worthy and all that is required as collateral is the accounts receivable and some factoring companies do not require a personal guarantee.

4th A factoring company also offers additional services. Unlike a bank a factoring company has a day-in, day-out relationship with its clients. They are constantly monitoring the accounts receivable and collections. They offer credit screening for potential new customers for your company and they provide detail up to date aging reports to help you get a better handle on your receivables aging. A factoring company is continuously advancing new funds as well as collecting outstanding invoices and your credit availability continues to grow with your business with new accounts.

So in closing the real question is not factoring being more expensive than a bank loan, it is obvious now that the two cannot be compared so that leaves us with looking at the benefits of factoring vs. a bank loan.

With factoring you never have to worry about out growing your line of credit or burning through that loan and finding yourself with debt on the books and needing more working capital only to find the bank is max out on what they can allow. With factoring each time you bring on a new approve customer you have access to additional capital so by using a factoring service your credit line grows with your company.

Plus if you are unable to fulfill jobs or orders due to inadequate working capital and factoring offers you the cash flow for this I can assure you the factoring discount is far less that it would be for you to miss out on that business entirely because of inadequate funding.

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Factoring article archives

Here are some links to some archives that should be beneficial for you:

Tips on Choosing a Factor

Do you Qualify for Factoring

Factoring Warning

What kind of Companies Use Factoring

The Factoring Process

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Factoring Application Warning

We have all heard it said before that it is in the fine print, read the details.

While seeking a factoring company you fill out several forms and have numerous conversations with so many different companies you forget who is who. The conversations start sounding the same and you know a decision needs to be made.

A common question that you should have been asked is about any liens against your receivables and of course you said no. You then pick the factoring company you want to use and they begin due diligence. You are eagerly waiting for this process to get over so you can receive your 1st funding only to receive a call from your factor that a lien has already been applied against your receivables. Not only that but another factoring company has a 2nd position because they filed a lien also.

Trust me, I am not making this up....it happens every day. As a matter of fact this exact situation happened just last week to one of the clients that decided to go with one of my recommended funding sources. They had filled out some applications with several other sources they contacted and did not realize that in the signature release the factoring companies had language that gave them the right to go ahead and file a lien against their receivables.

So instead of getting funding on the day the due diligence process was over, two liens were returned and funding had to be put off until the lien was cleared up!

I do not understand this tactic and I personally think it is very underhanded. Would you want to do business with a factoring company that does this?

So if you are looking for a relationship with trustworthy funding sources just Click this Link for a free factoring quote.

Questions 888-603-0055

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Low Factoring Rates

So what is going on with these advertised factoring rates?

Do not get confused or tricked by low advertised teaser rates. If you see 0%, 1% etc for the 1st 30 days asked for the fine print.

1st of all you need to look at your average aging. We see that 30 days in the real world usually means 35 to 45 days. This of course are the fees you will be paying.

Asked these questions when faced with teaser rates:

• What is the fee schedule for 31 to 90 days?
• Any monthly fees?
• Any per invoice fees?
• Any minimum fees?
• Any Application or Administration fees?
• Any renewal fees?
• When are reserves released?
• Are invoices bulk assigned?

Also remember to not make the mistake of just shopping rates, see our blog on this topic for some reasons Click this Link

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New Year same topics

I hope everyone had a great 2006. On we go to 2007 and I hope it brings you everything you hope for.

Here are some past articles worth revisiting so enjoy. I hope it helps.

What will it cost you not to factor?
Factoring Contracts
Factoring warning before you sign
What will your customers think?
Do you qualify for Factoring?
Do you have any financing?
Choosing a factor

Thanks for reading.

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The Factoring Industry Continues to grow

Factoring volumes worlwide continue to grow at double digit pace!

Click Here to read the Article

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