We will be discussing the comparative advantage of utilizing a business line of credit for your incoming invoices, as opposed to utilizing factoring for the same invoices. For those of you who do not know, factoring is a practice whereby you sell your invoices to a third-party to collect on. They will pay you the amount owed on the invoice, minus a fee, immediately.
Using a business line of credit to pay for your expenses while you are waiting for incoming invoices has some advantages over factoring, as well as some disadvantages. One of the oddest advantages is the relative cost. You pay only a few percentage points per year, whereas factored invoices typically charge between 1% and 4% per invoice.
So, if your invoices are typically paid off in 30 days to 90 days, this is an interest rate range from 4% to 16%. A line of credit should have an interest rate below 10%. The disadvantage is that it can be more difficult to qualify for a credit line.
In fact, when it comes factoring, there is no qualification whatsoever. Most services will provide you with the cash for your invoices with little additional requirements. The fee, as mentioned above, is between 1% and 4% per invoice. Thus, this can become more expensive.
One advantage is that you will continue to have the funds available on your business line of credit if you need it for additional emergency purposes. In general, factoring is easier and more expensive, but it can be a strong resource should you need it.
For more information, go to Business Line of Credit at http://www.unsecuredbizloan.com/business-line-of-credit/