AR Cash Flow has outlined its views on factoring and bank loans.
Usually, the first thought for a business owner is to seek funds from a bank. Historically, invoice factoring is rarely the first thought of when attempting to overcome a working capital shortage. When first introduced to the idea of factoring, it is common for a business owner to compare all terms, costs and conditions with a traditional bank loan.
Very often, the business seeking working capital will look for a specific amount of money commonly referred to as its credit line or credit limit. Traditionally, the banks dictate a limit on funds available based on the assets (real estate, business equipment, etc.) being pledged as collateral.
Unlimited availability of funds is uncommon in the finance industry and sometimes cannot be grasped by a potential client. In factoring, a client's credit facility is based on his ability to deliver product (or services) and generate an invoice reflecting completion of delivery or service. Elasticity of funds is an unlimited line of funds that grows with the business and provides true cash flow as opposed to cash infusion.
A business must weigh the costs of factoring against not having the immediate cash flow. Most often the choice is between factoring and putting up with severe cash flow problems and missed sales opportunities.