Invoice Factoring Vs. Bank Loans: Which Is Better?
At many points of your business journey, you are going to have to address cash flow problems. So, do you opt for bank loans or invoice factoring?
SEE ALSO: What Is Invoice Factoring?
Invoice Factoring Works Quicker
Getting a loan from a bank could take anywhere from weeks to months, and that is only after the bank has had you jump through loops. If you qualify it is almost certain that the amount you are approved for will be far less than what you need. Time lags like this are detrimental to any business; Your business may not have 90 days to wait before it gets the cash necessary for paying employees, making deliveries and funding other operations.
Factoring your invoices provides a seamless way out of your money problems because it provides you money within 24 hours of the invoice being verified. Factor companies pay you an amount upfront (Alliance One pays up to 90% of the invoice amount) while keeping the remainder in reserve until your customer pays.
Another factor that makes factoring outstanding invoices such an attractive option is that while the bank will look at your credit before deciding on whether or not you get the money you need, the factoring company looks at the creditworthiness of your customer before placing a value on your invoice. So you can get the money you want from a factoring company even if your credit score is not the best.
The ease and convenience that come when you decide to factor your invoice mean you are always going to get paid for your work and always have cash flow when you need it.
Invoice Factoring Makes It Easy to Manage Credit Ratings
Getting into debt is a real part of any business; at some stage from start to maturity, a business may have to take out a loan to make ends meet or achieve its goals. As a business owner, you don’t have to allow this debt to cast a permanent shadow over your life.
With invoice factoring, you can secure a steady cash flow for your business as you work out the nitty-gritty of increasing your credit score are until you crossed the milestone of being in business for over two years. The more cashflow you can secure (factoring more invoices means more cashflow) the easier it will be for you to stay debt-free until you are able to approach the banks when the time is right.
Invoice Factoring Is Not a Loan
Invoice factoring is not a loan and can be secured even if your credit score is less than stellar. And just as there are different types of loans you can get from the bank, there are also different types of invoice factoring which you can choose from. One of these is non-recourse invoice factoring which is a risk-free form of factoring that puts all the risk on the factoring company.
Non-recourse factoring allows you to get an advance for your invoice while the factoring company bears the full risk of your customer not paying back the invoice due to insolvency. This allows you to get the cash flow you need without you having to worry about owing that amount to another company in the event that your customer has to close its doors.