Invoice financing is often misunderstood as being an expensive method of financing when compared to traditional bank financing. Actually, that’s not true. When you compare the fee factors charge versus the interest rate banks charge, factoring appears to cost more.
Factoring companies provide services such as accounting, credit services and receivables collections. Banks don’t offer these services for small businesses. Here are many more differences between invoice factoring and bank financing:
|Invoice Financing||Bank Financing|
|Cash flow statements||Not Required||Required|
|Complete financial statements||Not Required||Required|
|Income tax records||Not Required||Required|
|Proven financial track record||Not Required||Required|
|Future financial plan||Not Required||Required|
|Excellent personal credit||Not Required||Required|
|Borrowing amount||Determined by sales
||Limited to bank terms|
|Loan covenants or restrictions||No||Yes|
|Perform receivable collections||Yes||No|
|Perform credit services||Yes||No|
|Application approval process||3-5 business days||1-2 months|
|Cash availability||Instantly upon approval||1-2 months|
Bank loans are very difficult for small businesses to obtain these days. Not only are banks so heavily regulated by the federal government, but bank qualifications for a loan far exceed those for a factoring agreement.
Banks primarily focus on the credit of the borrowing business and its owners, while factoring companies focus on the credit worthiness of the business’ customers. A business can qualify for invoice financing within days. A bank loan approval can take months. With factoring, cash is available much quicker.
Mazon Associates is a Dallas factoring company that has over 40 years experience in the invoice financing industry. Mazon provides friendly, responsive and professional factoring services and they help your business improve its cash flow. Call Lisa Hultz at 800-442-2740 to discuss your factoring needs.