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Invoice Factoring vs Bank Loan

Posted by Gil Oliva on Tue, Apr 02, 2013 @ 03:56 PM

Invoice Factoring Over A Bank LoanInvoice Factoring vs Bank Loan

Many successful businesses are now utilizing invoice factoring as an effective solution to their cash flow problems instead of pursuing a traditional bank loan. Invoice factoring is a type of financing that businesses use which involves selling their accounts receivables to a financing company which pays their invoices for them. The financing company takes on a certain amount of the credit risk of customers who owe the business until they are reimbursed once the customers pay their invoice in full.

Not sure why you should choose factoring over a bank loan? Here are three reasons.

1. Timely Availability of Funds
Business owners who initially contact a bank in an effort to find ways to solve a cash flow problem discover that there is a lot of paperwork and financial and credit information they will need to provide. This step often takes several weeks or even months to find out if the loan has been approved. In contrast, business owners who use factoring have the payment for their services in the company bank account very shortly after sending the invoice.

Factoring make funds available, even when banks would not approve a loan, because factoring considers the credit worthiness of the individual who is invoiced for goods or services provided by a company. In contrast, a bank primarily emphasizes the credit rating and solvency of the business, not that of its customers. While a bank loan is certain to be less expensive than invoice factoring, the terms and conditions under which the small business must function are very different.

2. Unlimited Funds
Funds available through factoring are usually based on current collateral. Collateral is primarily based on the amounts due for the invoices you generate for services you have already provided. That means that the amount of money you receive one month depends on the amount of work you completed the previous month - so the amount of funds available are not restricted to a preset figure.

This type of business financing is ideal for new businesses because usually in order to qualify for a bank loan, you have to be in business long enough to establish good credit and show financial documents that prove you will be able to repay the loan out of company revenue.

3. Assured Funds
With factoring, businesses have the security of knowing that they will receive payment every time they send an invoice. When a business is assured of the funds they will receive, they are more prepared to efficiently keep up-to-date on employee payroll, insurance and taxes.

Factoring is better than a bank loan because it enables businesses to receive payment more quickly, to have an unlimited amount of funds available for future business, and to feel secure in knowing that they will be paid every time they send an invoice.

If you need a committed factoring company, Bay View Funding is your solution. Bay View Funding specializes in factoring, helping manufacturing, distribution and service companies, including freight transporters, to grow and prosper. Bay View Funding is strongly committed to providing businesses with convenient factoring to solve their cash flow challenges.


Financial Products & Services

Topics: Alternative Financing, Factoring Receivables, About Invoice Factoring

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