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Advantages and Disadvantages of Receivable Factoring



Advantage of Receivable Factoring

  1. Simpler administration: Factoring features less paperwork than loans and no credit or reference checks of your business.
  2. Potentially more available cash: The amount you can factor is based on the total value of invoices, not by collateral or credit history.
  3. Easier to get funded: Factoring services are more concerned with your clients’ credit history than your company’s. Also, factoring services could be a great option for startups that rely on quick availability of funds to keep business afloat.



Disadvantage of Receivable Factoring

The following disadvantage points that should have enough proportion in a consideration before the decision to go for factoring:

  1. Factoring could be more expensive: You typically pay more for use of the money for 30 days than you would for a short-term business loan.
  2. More time-sensitive: If you have invoices that have gone unpaid for 90 days or longer, a factor may not take on the risk, or could offer a much smaller advance on the invoices.
  3. It could harm business relationships: Dedicated clients may view factoring as intrusive since the factor will call and send letters to indicate their accounts were sold. Also, factors want their money right away and may require clients to pay sooner than they are used to.


You may want to read the following sub-topics too:

What is Receivables Factoring?

A basic explaination about receivable factoring.


Types of Factoring

Types of factoring available in the market place.


Factoring Fees and Funds Structure [with calculation case example]

A basic explaination about common fees of factoring, how it is structured, explained with case example for easier understanding.


Receivable Factoring – The Funding Process

Basic knowledge about funding process of a factoring.


Choosing A Factoring Company

A considerable guidance on how to choose a right factoring company to meet your need.


A Worth Factoring Buyer’s Tips

Additional worth consider tips for factoring buyer.


Factoring – Appendix (Jargons)

Jargons commonly used in factoring world.

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