Business Factoring LoansAnne MacRae2016-06-13T03:56:29+00:00
Business Factoring Loans
Select The Right Funding Solution
To say “Business Factoring Loans” is actually a contradiction. Factoring is not a business loan. There is no debt repayment, no compromise to your balance sheet, no long-term agreements that you are committed to. Invoice factoring allows you to use your own assets (accounts receivable) to create cash for the growth needs of your company.
In full recourse factoring, purchased accounts that are not collected by the factor within the extended terms provided (often 60 to 90 days), for any reason – including bankruptcy or some other financial inability of the account debtor to pay – are charged back to the client by its factor.
In some jurisdictions, transactions of this type are viewed as secured loans; by the vendor to its client, with the loan being represented by the factor’s advance(s) on the accounts. However, in other jurisdictions, the intent of the parties was to create a true sale of the receivables, and as such, with full recourse, it is the intent that governs, and a full recourse factoring transaction is still treated as a true sale of accounts, if that is the stated intent.
Better Financing Options In Canada
Factoring in Canada differs from small business loans and other bank loans, in that it involves a purchase and sale of the client’s accounts, rather than a lender’s loan to its borrower, secured by borrower’s accounts presented for factoring. Loans in this case are not being created. A factoring company in Canada that shows that they are primarily concerned with the quality of the assets being purchased (that is, the collectability of purchased accounts), rather than the client’s ability to satisfy a loan by reviewing financial covenants and ratios, has taken the necessary steps to show that they are in the business of purchasing quality assets, rather than lending money to a client with the expectation that they will be paid back. The vendor has shown that it focuses more on the creditworthiness of the client’s customers than that of the client itself.
This is different if you look at invoice discounting. With invoice discounting the client’s customers are often unaware of the relationship between the client and the business financing company. The client maintains responsibility for customer credit approval, the sales ledger, invoice processing and payment chasing. The factor is shown a list of bills produced each week and provides an advance against that list of receivables; taking all of the invoices as security against the advance. Payments are made to a lock-box or a designated bank account administrated by the factoring company. In a case such as this, it can be argued that a loan is being created since the vendor is concerning itself more with the credit of the client than the credit of the client’s customers.