Should You Choose Factoring Companies Over Banks?

By: Chris Lanchech

Factoring companies purchase accounts receivable from various businesses and will enable you to get immediate cash on-end to serve as resource for your day to day operations. Of course each time they lend you an amount it will depend mostly on the quality of your assets. However there have been accounts of people getting duped by fraudulent factoring companies and there have been factoring institutions cheated by fraudulent borrowers as well. With banks offering business loans and other credit options, why would factoring invoices be a better option?


Reason #1: Bigger Cash Out

The problem with getting financial assistance from a bank is that they normally give you only up to 60% upon payout. Some banks and credit institutions do purchase invoices and assets but they won’t pay you enough to get your cash flow back on track. With a factoring company, however, you can get as much as 75-80% right on day one. That is pretty much the same as saying you got paid for the job right on the same day you started working on it. It becomes even better if you factor multiple invoices at the same time.

Reason #2: Lower Costs

Credit unions and banks can charge a pretty hefty fee. You’ll see charges that can go all the way up from 4% to a whopping 12%. They can literally rob you of your profits. A factoring company will generally charge you less than 2%. This means you get to use your money and they still get to earn a little profit along the way. One of the best things about factoring invoices with dedicated companies is that they sometimes offer factor insurance. This means you won’t have to pay them the money in case your client defaults on his payment. Instead, they’ll give you the rest of the loan and will then chase after your client to get the money back.

Reason #3: Faster Processing
Your business may not be able to function until you get some funds to start with and the problem with banks is that the application and assessment procedures could last for weeks. The good thing about a factoring company is that the entire procedure only takes a few days. Usually it only takes three to five days and you’ll have the amount deposited to you. To make the process even faster, factoring invoices usually only requires you to fill out two pages of information. This is quite the opposite of applying for a business loan or factoring invoices with a credit union because that would require piles of paperwork and information.

The Verdict: Factoring Companies versus Banks and Credit Unions

Banks and credit unions can be an option especially if your business has good standing with them but remember what your company’s main focus is: profit. Profit is derived from steady cash flow and lower overhead costs. You can only attain these by having stable resources, less costs, and less time wasted. With all of these taken into consideration, your company can benefit more if you choose factoring companies instead of banks.

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Chris Lanchech

Hi everyone, my name is Chris and I am a junior analyst at Neebo Capital and an inspiring blogger. We enjoy speaking with business owners and entrepreneurs who come to Neebo Capital looking for cash flow solutions. Give us a call toll free at 1-888-382-3766 or Visit us online at www.neebocapital.com

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