Why Choose Factoring Instead of Traditional Lending

In recent years, with the increase of global trade, international factoring has remained in high demand. Business people and companies are choosing this alternative funding means over conventional bank loans for a variety of reasons.

International trade finance firms that specialize in factoring can solve short-term cash flow issues by purchasing your company’s account receivables in exchange for an advance on the majority of the total invoice value.  The factoring firm then collects the full amount from your buyer upon invoice maturity. Once the invoice is paid in full, you then receive the remaining balance minus a fee. You no longer have to wait thirty to ninety days for your customers to pay you, which improves your case flow position.

Factoring services are available for businesses of varying sizes to help with their financing needs. Here are some key reasons why you should choose factoring rather than traditional bank financing:

Faster than Bank Loans

Factoring firms offer a quick turnaround from initial contact to account setup and funding is generally provided within 24-48 hours of the invoice submission date, or even quicker in some cases, rather than taking weeks or months. The application and set-up processes are faster and easier than applying for a bank loan.

If you are selling internationally and need some quick cash, working with a reputable factoring company is your best financing option.

More Flexible

In most cases, with conventional bank loans, you will be locked into agreed-upon terms and rates. These rates can be high. You will have to pay off the loan along with interest with your unknown future income.

If your business slows down or other factors lower your income, you could be in trouble, as your loan obligation will not change. This is where factoring is a win-win as it is merely an advance on sales, which you have already completed; as a result, you have nothing to repay.

Factoring your receivables, thereby, gives you greater flexibility, which is useful when looking to grow your business. This type of financing is scalable and can accommodate an increase in sales. If your company grows, you can choose to sell more invoices.

Furthermore, factoring is not a loan so this type of financing does not show up on your balance sheet as lines of debt.

Lenient Qualification Requirements

Another major reason many businesses opt for factoring is because of the simple and less stringent application process. You can work with a factor even if your business or company has less than stellar credit.  

On the other hand, if you apply for a traditional bank loan with poor credit, it may not work in your favor. For a bank loan you will have to establish that you have solid financials, suitable assets, as well as few liabilities in order to qualify. And for most new businesses, these requirements are particularly difficult to meet. Factoring, on the other hand, is based on the creditworthiness and financial strength of the buyers, rather than your own credit background.

Tradewind is one of the best international factoring companies that provides tailored cash flow solutions for its global clients. Focused on the mid-market, Tradewind offers financing, credit protection, and collections for the world’s exporters and importers.