When a business is looking for ways to finance operations, they might face a dilemma. Which financing way is better: invoice factoring or bank loans. In some cases, factoring might have the edge on a good, old-fashioned bank loan, while some reasons might justify taking a bank loan instead of invoice factoring for others. But which one is best for you? Let’s find out.
Reasons, why is it worth to pick invoice factoring
Advocates of factoring will always point out the fact that with this service, there is no debt. However, factoring companies like long-term commitments and instate a reoccurring fixed fee for ‘services’.
Nevertheless, factoring has an unlimited cash ‘capacity’, allowing for considerable funding with small commitments. Most of the work here is done by the factoring company instead of you, so the only responsibility which falls on your shoulders is to pay the fees on time.
Factoring agreement relies on credit evaluation of your clients and not you. This, however, is done very quickly and your business can receive cash within a week, which is significantly quicker than with a bank loan, making a strong case in favour of factoring.
Finally, we should mention that factoring is not-so-difficult to get even for smaller business, while bank loans are almost unobtainable for startups and new commercial organisations.
Reasons why it is better to select bank loans
Even though other financial services have their specific set of pros, most mid-sized and large businesses prefer bank loans. Why? Because of simplified conditions which are standard over the entire state or country, great deals on returning business, etc.
If you are interested in the realisation of a vision, a strong business plan, the bank loan might be a more suitable option. This is because opposite to factoring, loans boost not just short, but more long-term cash flow. If your business has a proven track record, an outstanding credit history and a steady stream of cash, taking a bank loan can be your best bet thanks to small and fixed interest rates.
All in all, both services have their lists of pros and cons. Make sure to know whether you need short-term benefits or whether you are trying to finance a grandiose vision or sustainable plan. If you know these things, the selection is going to be simple.