See Also:
What is Factoring Receivables
The Dreaded “F” word
Accounting For Factored Receivables
Journal Entries For Factored Receivables
Working Capital
Preparing a Loan Package

Can Factoring Be Better Than A Bank Loan?

What I have found is that normally a business owner who needs financing for the growth of their business start their financing search by looking for a business loan or a business line of credit from a bank. The reason is that business loans and lines of credits from a bank are well known products. However, due to the regulations imposed on the banking industries loans are very hard to get. What I have found in the real world is few businesses actually manage to get them unless they are collateralized by equity in real estate or equipment.
As a result, the accounts receivable and inventory financing needed in a growth mode is the most difficult financing to obtain from a bank. There is an alternative for such growth needs, which is factoring. Factoring is offered by commercial finance companies. In the vast majority of cases, factoring may be a better and easier solution to obtain than traditional bank financing to fund the growth of a business.

Determine if Factoring is the Better Alternative

To determine if factoring is a better alternative than a business loan you just need to ask yourself these questions:
1. Does my company provide goods or services that are completed when I invoice my customers?
2. Are my customers not paying within the credit terms I am offering?
3. Are you turning away sales because you do not have the cash?
4. With cash, is your business growth potential greater than 20%?
If your answers were yes to these questions, then factoring your accounts receivable invoices is better for you than a traditional loan that you can obtain from banks. Accounts receivable factoring provides a business with financing flexibility based on your sales. A properly structured factoring program eliminates slow payment cycles by providing your business with cash to grow your business.
As a business owner, you should be aware and open to all financing products available to you by either a bank or commercial financing company and choose the one that best fits your company’s needs.
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