As businesses grow, they often need additional funding for expansion, payroll, marketing, or other expenses. Sometimes companies are strong enough financially to get a bank loan as a way to increase credit. However, in other cases, less traditional methods of financing are needed. For some businesses, traditional bank loans simply don`t make sense. In particular, entrepreneurs who are looking for financing based on need or who do not wish to add additional debt to their balance sheet. Banks offer few levers to meet additional credit needs and can even do more harm than it helps. Let`s break down what`s best for your business – factoring versus bank loans. If cash flow can decline dramatically, the company will find that it needs large amounts of cash, either from existing cash holdings or from a factor, to cover its obligations during this period. The longer a relatively low cash flow can last, the more cash you need from another source (cash or a factor) to cover your obligations during that period. As stated earlier, the company must weigh the opportunity costs of losing a return on the money it might otherwise invest against the costs of using factoring. However, most companies can successfully apply accounting factoring to their financing model. Governments have been latecomers in facilitating factor-financed trade. English customary law initially decided that the assignment between the seller of invoices and the postman was not valid unless the debtor had been informed.
The legislation of the Canadian federal government governing the allocation of the funds it owes still reflects this attitude, as does the legislation of the provincial government that imitated it. Over the course of the current century, the courts have heard arguments that the assignment is not valid without the advice of the debtor. In the United States, the majority of national governments had adopted until 1949 a rule that the debtor did not need to be informed, opening up the possibility of factoring non-notification agreements.  In essence, the entity selling the receivables transfers the risk of default (or non-payment) of its customers to the factor. As a result, the postman must collect a fee to offset this risk. The length of time the waiting or non-collection of debts may also affect the charge on the factors. The factoring agreement may vary between financial institutions. For example, a factor may want the company to pay extra money if one of the company`s customers is late in a debt. Although the conditions set by a factor may vary depending on internal practices, funds are often released within 24 hours to the seller of the receivables. In return for the cash payment of the company`s receivables, the postman receives a royalty. The sale of the receivable transfers ownership of the receivable to the postman, indicating that the postman obtains all the rights attached to the receivables.
  Accordingly, the receivable becomes the asset of the factor and the factor is entitled to receive payments made by the debtor for the invoice amount, and the crediting asset is free to mortgage or exchange the receivable asset without unreasonable limitations or restrictions.   As a general rule, the debtor is informed of the sale of the receivable and the postman invoices the debtor and invoices all recoveries; However, there is also non-notification factoring in which the customer (seller) collects accounts sold to the postman as the factor agent.. . . .