The Difference Between Invoice Factoring And A Bank Loan
One question I’m asked a lot is the difference between a bank loan and invoice factoring.
The two are very different.
Both provide cash to businesses, but a loan is thoughtÂ of as traditional financing; invoice factoring isnt a loan and doesn’t require any debt at all.
Invoice factoring is another tool for businesses to use.
You don’t have to wait 30, 60 or 90 days for clients to pay an invoice. With invoice factoring, you get cash in as little as a few days. You don’t have to qualify; generally, there isn’t a concern about your credit, but rather the financial health of the customer paying the invoice.
That’s what makes this so ideal for small businesses. There is no debt, and the process is usually quicker at just 24 to 48 hours than a bank loan.
How Factoring Works
You produce two invoices; one invoice is sent to send the customer and the other is sent to a factor. The factor will pay you the pre-arranged advance amount on your invoice.
The customer pays your invoice and the balance of the payment is paid directly to you, minus a pre-arranged fee.
Is Factoring Right For Me?
To find out if it’s for you, answer these questions:
Would more working capital offset operating expenses?
Do you need cash to grow your business?
Has your business exhausted traditional financing?
Would better cash flow strengthen your balance sheet?
If you answered yes to any of these questions, factoring may be a viable solution to fund your business with no debt, no loans and no banks.