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Invoice Financing vs Bank Loan: What’s the difference

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Are you aware of the differences between invoice financing and a bank loan? What follows is a handy list of the major differences between the two. This will give you a much better grip on your existing options in the market today.

Invoice Financing is a Different Process Than a Loan from a Bank

The first thing you need to know is that invoice financing (also sometimes called invoice factoring) is not the same as debt financing. Your business will not borrow money in the same way as it would from a bank. In other words, this is not a standard loan. An invoice financing company will purchase your invoices. These invoices are treated in the same way as assets.

Invoice Factoring is a Much Faster Process Than a Loan

There are other factors that make up the difference invoice financing bank loan. For example, the turnaround for a bank loan can often take quite a lot of time. The bank you are dealing with will need a certain amount of time to carry out the approval process. There will also be a fair amount of underwriting involved in the basic loan process. This is in stark contrast to the basic invoice fianancing process, which moves at a much faster rate.

Invoice Financing is the Way to Get Your Cash Flowing in a Hurry

There is another difference between invoice financing and a bank loan that you will need to be aware of. If you need to get your cash flowing in a hurry, factoring is by far the best way to go. Once a trustworthy relationship with your provider is established, invoice financing will get your cash flow moving swiftly and efficiently.

The process for setting up this arrangement is also very fast. It can be often accomplished in 7 days. In some cases, the funds you need can be in your bank account within 72 hours of the initial factoring transaction. And as your business begins to grow and expand, so will the funds that are available through the financing arrangement you have set up with your finance provider. The terms of the arrangement are already set in stone and will never need to be negotiated to keep up with your growth.

Your Invoice Financing Arrangement is Not Dependent on Your Credit Score

Another important difference between invoice financing and a standard bank loan is that your arrangement is never dependent on your credit score. The debts that your company has on its books are almost always the only assets that will be required in order to secure funding for your expansion.

This is different from a standard loan that you would receive from a bank. A bank will nearly always demand to see the figures your business has posted for at least the previous two years. A bank will also regularly demand some form of collateral as a goodwill token of financial security. The size of this collateral will vary according to the amount of the loan you are currently seeking.

In the end, it can be seen that invoice financing is much more beneficial to a small and medium sized businesses. The arrangement you receive in an invoice financing deal is more beneficial than the usual loan that a bank offers.

Download our free invoice financing fact sheet here:
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Kenneth Tan

Kenneth Tan

Kenneth is a Marketer at Nufin Data, who works with Enterprises of all sizes to help them discover more working capital and competitive financing options. Learn how an effective Supply Chain Finance (SCF) program can benefit your organisation today by getting in touch with him at kenneth.tan@nufindata.com

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