![]() Invoice factoring doesn’t require any upfront fees and there are no monthly minimums or maximums on the amount you factor. In fact, funding of most factoring agreements occurs in as little as 24 hours. Unlike bank loans and lines of credit, how much you can get from your invoices is determined by the credit worthiness of your customers, not your own credit history.īecause invoice factoring doesn’t require complicated, time-consuming documentation or an audit of your business, approval times are very fast. In return, the factoring company gives you immediate cash and handles the collections on the original invoices. For example, American Receivable currently offers rates starting as low as. ![]() The process is simple, and basically, allows you to sell your invoices to the factoring company at a small discount. Invoice factoring, also referred to as receivables factoring, allows you to convert your invoices into immediate cash to cover operating costs without taking on additional debt. These restrictions can leave you with the financial resources you need but don’t provide the freedom to utilize the resources the way you need to. There are also restrictions that prevent borrowers from incurring additional debt for any reason, and from selling or purchasing business assets over the period of the loan. ![]() As such, you may not be approved or may be charged more for the loan.įinally, bank loans and lines of credit also come with restrictions that limit how the loan proceeds can be used. According to the banks, borrowers who don’t meet the requirements of a loan covenant are high risks because they are likely to default on the loan. To stand a chance of being approved, a business must also fulfill certain financial performance requirements – what banks call a loan covenant. For startup companies without a solid credit history, the chances of being approved are usually pretty slim. And approval depends largely on your creditworthiness. The process usually involves plenty of paperwork and approval can take between several weeks and a few months. With traditional bank loans, you provide the lending institution with the required documentation and they decide whether or not to give you a loan, how much to lend you. In many cases, this option is ideal, but there are times when invoice factoring is preferable – for a number of reasons. When searching for financing to meet their day-to-day operational needs, business owners typically turn to traditional bank loans or line of credit. What’s the difference between invoice factoring and traditional bank loans? It’s a question we hear a lot, so in this article, we’ll take a look at the similarities and the differences to help you decide which is best for your particular situation.
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