Invoice Factoring vs Bank Loans What’s the Difference?

As businesses grow, it’s not uncommon for them to realize they need additional financing to expand, meet payroll, and cover expenses. Some corporations are strong enough to get bank loans in times like these to increase their available credit. But for other businesses, especially smaller ones, the traditional bank loan just isn’t a good fit — either because their credit isn’t quite good enough, or because they simply can’t take on any more debt. This may especially apply to small- to mid-sized trucking operations, where you might need just enough money to last until your next invoices are paid, but you don’t want to deal with the banks.

In times like these, less traditional means of financing are necessary, such as trucking factoring services. But what is a factoring company, and what’s the difference between traditional bank loans and invoice factoring?

How Invoice Factoring Works

Invoice factoring treats your yet-to-be-paid invoices like valuable assets, and a trucking factoring service will purchase those invoices from you, so you have the operating capital you need to get your work done. Then the factoring company collects the money owed to you from your clients to fulfill the invoices. The best invoice factoring services will convert outstanding invoices that are due within 90 days into cash that you can use immediately, usually within 24 hours or on the same business day.

As a financing solution, invoice factoring helps businesses stabilize their cash flow, because it unlocks the cash sitting in unpaid receivables. That’s why invoice factoring can also be called accounts receivable factoring. A trucking factoring service will treat your invoices as collateral on the cash they provide to you. This means that as long as you have invoices to factor, funding of some kind is available.

Invoice Factoring vs. Bank Loans

The things that set invoice factoring apart from traditional loans is the amount of hassle and long-term cost. Even if you qualify for a loan, getting one means adding more debt to your company, which might not be ideal depending on your financial situation. The process of getting a loan is also quite complicated, especially if you don’t have perfect credit and an existing relationship with the bank, and it can take a long time to get the loan approved. On top of that, loans typically come with high interest rates that you’ll have to pay over the next months or years.

As you can imagine, that kind of scenario is far from ideal for most small businesses, and for trucking companies with invoices to collect in particular. Conversely, invoice factoring services don’t require you to have good credit to purchase your invoices. Instead, they only require that your clients have good credit, since they’re really the ones who have to pay the invoices. The process of qualifying for invoice factoring typically takes less than 24 hours for a good factoring company, and instead of adding debt to your business that must be paid off with interest, they simply take over your invoices for a small service fee.

Whether you’re a trucking company, a freight broker, or in some other business entirely, look no further than Advance Business Capital factoring services for all of your invoice factoring needs.

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