Independent vs. Bank Factoring
While the overall goal of invoice factoring is the same, choosing the right provider is critical. Let’s summarize the differences.
Independent Factoring Company:
Independent factoring companies work with businesses who need to accelerate cash flow and may have been turned down by a bank. A business with creditworthy customers may be eligible to factor even if it can’t qualify for a loan. However, an independent factor must borrow from a third party in order to fund your invoices. That can increase risk and costs for your business, and can reduce efficiency.
Bank Factoring Company:
A bank factor provides the same flexibility and benefits as an independent factor, but also offers additional advantages.
Easier Transition to Bank Loan – A bank factor works with many businesses who are considered outside of the traditional credit box. Many of these businesses have been told “no” by a bank for a commercial loan, but they are still very strong candidates for working with a bank that offers factoring, or accounts receivable financing. Businesses that work with a bank owned factoring company may also have an easier time transitioning to a commercial loan at a later date.
Greater Security – Banks are more secure and provide a sense of financial stability for the business. A business’s clients are very valuable relationships and a bank offers a level of comfort not found in independent alternative financing companies. Clients feel better about interacting with a bank than an unfamiliar or unknown business entity.
Competitive Rates – In addition, since the bank has its own funds, it can offer the business very competitive rates. Unlike many independent factoring companies who work with multiple funding sources, a bank acts as a direct source of funds and eliminates the middleman.