Factoring or a line of credit?
Factoring works invoice by invoice; a line of credit is one overall limit, set from the file as a whole. The lender decides, from your invoices, your deposits and your history.
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- What is the difference between factoring and a line of credit?
- In factoring, you assign an invoice owed by a business customer and the lender pays you part of it, then the rest when the customer pays, less its fees. With a line of credit, you draw on a limit and interest applies to the amount in use.
- When does one or the other come up?
- Factoring follows your sales on terms: it supposes invoices owed by businesses or public bodies. A line of credit serves varied needs that come back, whether your customers pay on terms or not.
- What does each one ask of the business?
- In factoring, the lender looks first at the strength of your customers, who are usually told that the invoice has been assigned. For a line of credit, it looks mostly at the business itself: time in business, credit and regular deposits.
- Factoring or a line of credit: which one for my business?
- It depends on your customers and on your file: factoring supposes invoices between businesses, a line of credit a history the lender judges sufficient. Each lender decides and writes it in its offer.
What the lender looks at
- Actual deposits, month by month
- The lender compares the volume invoiced or the limit requested with what your customers actually pay.
- Trend over the period
- A growing invoice book or growing deposits are read over the whole period.
- Days in overdraft
- A frequent overdraft looks like a line of credit already used in full.
- Payments to other lenders
- An advance already taken on the same invoices has to be declared.
$0 upfront · 7% only if funded
An intermediary, not a lender.
The lender sets the final amount and its cost in its written offer.
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