Factoring as a source of finance compared to a traditional bank loan

Traditional banks have red tape policies and complex loan documentation in the terms of the agreement, which restricts a normal business owner to get instant access to cash funds. On the contrary, factoring as a source of finance is a great alternative method to build up instant cash locked up in your outstanding receivables.

Gone are the days when the banking system was an effective source for all kinds of capital funding. Individuals and businesses of all multitudes and scale used to seek commercial, private and publicly owned banks and financing entities for acquiring loans for their individual and business needs. Today, this trend is changing at a significant pace all across the globe, especially in the UK due to the availability of alternative financing options such as invoice finance, invoice discounting, invoice factoring and more.

Factoring vs a traditional bank loan

Factoring as a source of finance is a fast, easy, flexible way for businesses — both small and large — to boost their cash flow. Here is how factoring differs from traditional loans or business line of credit:

Cash Limit

When applying for a bank loan, there is a limit attached to the conditions, which signifies that you can only secure a limited amount of loan. However, in factoring, the amount of funds available increases as your factoring receivables increase.

Eligibility Criteria

Qualifying for factoring is not as time consuming as one might think, as most factors review your customers’ reputation, credit strength or face value of invoices rather than credit score. On the contrary, qualifying for bank loans require a comprehensive review of your company’s credit history, assets, and liabilities, and therefore financials.

Time duration

Account creation with the factoring company is simple, with the overall process taking no more than two to five working days. Furthermore, once the account is in process of activation, you can obtain instant access to money, usually within 24 to 48 hours. On the contrary, securing a bank loan may take several weeks or even months that can cause a great deal of delay and stress.


When it comes to factoring as a source of finance, the paperwork is more straightforward compared to bank loans or other financing means. Most commonly, the application of bank loans require lengthy documentation, and an agreement to pages and pages of complex terms of payment, coupled with the sharing of personal information and financial records to secure a bank loan.

Lou Chan, Populous World

For more information about invoice financing and how to unlock cash tied up in your company’s invoices, visit our expert funding specialists: https://populous.world/invoice-finance/for-businesses.html