Invoice Factoring vs. Bank Loans

Invoice Factoring vs. Bank Loans

As businesses expand –and hopefully they will– there is often a great need for resources to expand in a certain area. Additional resources may also be needed to cover a payroll, finance a marketing strategy or address the plethora of other expenses a growing business will face. A company may have the financial stability to obtain an increased line of credit or take out a loan from the bank. For some situations, a tradition loan option is just a bad idea. Banks offer little support for additional borrowing needs and can sometimes be more of a harm than a help to fledgling companies. Sometimes situations call for less than traditional means of procuring reliable financing. One such financing alternative is called “Invoice Factoring”. Invoice factoring is a means for companies to gain access to a stalled potential, stabilize the cash flow and beat back the bill collectors. This has also been called “accounts receivable factoring”. What this process involves is looking at invoices as collateral, which can be sold out to factoring companies for financial advances. Companies that work with invoices to factor have the considerable possibility here. Here is a closer look at some of the specifics involved with Invoice Factoring. Interest Rates or Factoring Fees When looking at the initial numbers involved with invoice factoring it may seem that the costs of factoring are even higher than yearly interests that will be paid on bank loans. This is an illusion caused by not viewing the fee about the year’s invoice value; but when you lay out all the numbers alongside things become clearer. Here’s how it works:...