Invoice Factoring vs. Bank Loans: 6 Reasons to Choose Factoring for Your Business
When it comes to injecting your business with positive cash flow, there are several reasons you should consider invoice factoring over bank loans. Invoice factoring, for those who don’t know, is the process of selling your accounts receivables to a factoring company, thereby turning your unpaid invoices into immediate cash. In other words, you’re not waiting 30 to 90 days for a client payment—you get cash up front, which prevents the dreaded cash-flow crunch from hurting your business.
For more info about invoice factoring, see our blog posts:
- What Is Invoice Factoring? (And How Factoring Can Help Your Business Grow)
- 5 Reasons to Use Invoice Factoring to Supercharge Your Business Cash Flow
- The History of Invoice Factoring (And Factoring’s Growth in the 21st Century)
Here are 6 reasons to choose invoice factoring over a traditional bank loan.
1. With invoice factoring, you usually get cash for unpaid invoices within 24 hours. After you submit an application for a bank loan, on the other hand, it could be 30 to 60 days before you see any money—that is, if you’re even approved.
2. Invoice factoring approval is not based on your business’s credit history. It’s based on the credit-worthiness of your clients or customers. If your business is new or has spotty credit history, the chances of being approved for a small-business or bank loan are slim to none. Factoring, however, checks the credit of your clients and you’re much more likely to be approved.
3. Invoice factoring has a simpler application process. Applying for invoice factoring is simple and takes just minutes of your time, while the application process for bank loans can be complicated and exhausting.
4. Unlike bank loans, invoice factoring does not require covenants. Bank-loan covenants and clauses can lead to some serious regret down the line, while invoice factoring is not hampered by such potentially business-limiting restrictions.
5. Invoice factoring helps your business with credit management and collections. The invoice factoring company typically handles collections on the invoices sold to them, so your business can forget about hassles like billing, credit checking, or stressing about getting clients to pay on time. Try to get a bank to help you with all that!
6. Invoice factoring does not saddle your business with debt. It’s an inevitability that bank loans must be paid back (with interest!). When it comes to invoice factoring, however, there is no debt. The factoring company buys your invoices outright (at a small discount, of course) and that money is yours. No debt!
American Commercial Capital, LLC, has provided invoice-factoring services to Houston-area small businesses since 2003. We also provide factoring services to businesses in San Antonio, Dallas, Austin, Fort Worth, and other nearby cities in Texas.
If you want to learn more about how invoice factoring can help your business, give us a call at 713-227-3863, contact us here, or fill out our form for a free, no-obligation quote.
READ MORE FROM AMERICAN COMMERCIAL CAPITAL
How Does Factoring Work for Service-Based Businesses?
If you run a service business, you might wonder whether factoring is really for you — it’s often described with examples about shipping goods or delivering products. The good news: factoring works very well for service-based businesses. What you’re factoring is the invoice, and a service invoice is just as fundable as a product invoice, as long as the work is done and billed to a business customer.
What Questions Should I Ask a Factoring Company?
Walking into the conversation with the right questions puts you in control and quickly separates the straight-shooters from the slippery ones. Here’s a practical checklist to bring with you. A good factor will answer all of these clearly and without hedging.
On cost and fees What is your factoring fee, and exactly how is it structured — flat, or does it increase the longer an invoice is unpaid? What…What Are Hidden Fees I Should Watch Out For?
This is exactly the right thing to be suspicious about, because the difference between a fair factoring deal and a frustrating one often lives in the fine print. A reputable factor is transparent; your job is to make sure you’re working with one. Here’s what to look for so nothing catches you off guard.
Ask about each of these specifically, even if the factor doesn’t bring them up:
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