F actoring , generally, favors a growing business because it does not limit the amount of cash flow that a company can generate through the sale of its invoices. B ank loans are for a specified amount, terms and period of time. The time frame needed to modify a bank loan is not always consistent with fast growth companies. B ank loans are almost always cheaper than factoring. F actors , on the other hand, can provide valuable client services and cash flow to companies which are not currently eligible for bank financing or wish to seek alternative financing sources.
F actoring fees are more expensive than loan interest charged by a banking institution.
The reason is the cost of money. Factors borrow short term money to service their clients as opposed to the banks which work with the depositors' funds on a longer term basis. The percentage fee charged by a factor is actually a transactional cost based on how long it takes for your customers to pay, the volume of invoices you factor and the creditworthiness of your customers. The fee charged varies from factor to factor. The rates on factoring international invoices may be slightly higher if the accounts are not already insured or guaranteed by a recognized institution.