When a business goes over budget and is short on cash, they often turn to their local bank for an asset-based loan. They may also consider factoring accounts receivables (AR) for some quick cash. Which is a better option, a loan or factoring accounts receivables? This article looks at the advantages and disadvantages of these two types of cash procurement. First it’s important to understand accounts receivable factoring.

What is Accounts Receivable Factoring?

In simple terms, factoring accounts receivables (aka. invoice factoring) is when a third party (the factor) buys a company’s accounts receivables. This differs from a typical loan because the money received from the factor does not have to be paid back. There are usually three parties involved, including the:

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