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.
READ MORE FROM AMERICAN COMMERCIAL CAPITAL
In this week’s business video roundup, Gary Vaynerchuk speaks with Tilman Fertitta, the owner of both Landry’s and the Houston Rockets. Together they discuss Fertitta’s new book (Shut Up and Listen! Hard Business Truths That Will Help You Succeed) and dive into other topics surrounding entrepreneurship, including the hospitality business. Other videos on deck: Grant Cardone’s top 10 rules of success, how Ugg founder Brian Smith turned a fledgling California…
In this week’s roundup of great videos for entrepreneurs and business owners, the CEO of Farmgirl Flowers reveals how transparency saved her business, Patrick Bet-David discusses why so many business plans fail, and Gary Vaynerchuk talks with Marie Forleo about building a business and a life that you love. Plus, a few tips on writing more effective emails from Steve Jobs and an in-depth exploration of why Dunkin’ Donuts…
In this week’s business video roundup, Gary Vaynerchuk discusses the business strategies you should be focusing on for the rest of the year in a mammoth 70-minute speech, Brian Tracy offers up six tips for new entrepreneurs, and CNBC explores why Canada’s fast-food giant Tim Hortons has failed to catch on in the United States. Plus, a few things business owners can learn from Jeff Bezos and the strategies he…