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 roundup of great videos for entrepreneurs and business owners, Patrick Bet-David lays down nine obstacles every entrepreneur will face (and how to overcome them), Gary Vaynerchuk welcomes Liquid IV CEO Brandin Cohen to the latest episode of Coffee & Commerce, and Stanford Graduate School of Business hosts a View from the Top conversation with Netflix’s Global Chief Marketing Officer, Bozoma Saint John. Plus, Marie Forleo has three…
In this week’s business video roundup, Patrick Bet-David breaks down how to find a great business partner, Gary Vaynerchuk and Beth Weissenberger talk about how to create a work environment and company culture that fosters high employee morale, and CNBC explores whether it’s beneficial for restaurants to partner with popular third-party delivery apps like DoorDash and UberEats (the answer is complicated). Plus, CNBC also looks into how the Texas winter…
In this week’s roundup of great videos for entrepreneurs and business owners, Gary Vaynerchuk welcomes streetwear moguls Ben and Bobby Hundreds to the latest episode of Coffee & Commerce, Business Insider tells the story of a family-owned Japanese business that has survived more than 25 generations and 1,000 years, and CNBC looks into how China came to dominate the electric vehicle market—and whether the U.S. can hope to catch up.…