In business, alternatives can either make or break you. It’s nice to have them because it allows entrepreneurs to weigh down which would best fit their needs but at the same time it can also be a trigger that sets things ablaze with others failing to acknowledge the option that bests suits their case. That said, we decided to put spot factoring and traditional credit, two very popular options in the financing world, side by side. Let’s get to know how similar or different they are and which situations best call for them.
Spot Factoring – It is a type of financing that involves the use of a particularly chosen sales invoice from which immediate cash is to be derived from. Its value shall be advanced prior to its maturity in exchange for the right to collect against it.
Traditional Credit – This refers to bank loans, mortgages and similar other arrangements where a certain sum is granted by a financial institution like a bank on the premise that it shall be repaid with interest on or before a pre-agreed time period and shall be secured by a collateral such as real estate properties, corporate and/or personally owned.
Spot Factoring – What makes it a favorite option among businesses lie in its ease of application. There are far lesser requirements to submit given that providers bank not on the company’s creditworthiness but that on the customer to whom the invoice is attached to instead.
Traditional Credit – Because the risks for the providers are higher, creditworthiness of the business is a huge factor to be considered making requirements and application long and tedious. Things like financial statements, credit score and history shall be taken into account.
Spot Factoring – The application process is so fast that it almost happens instantaneously. Several providers can release cash within a day’s time which is why spot factoring and other receivables financing methods are widely used for cases that cal for immediate cash flows.
Traditional Credit – Since we’re talking about bigger digits and higher risks, bank loans and mortgages can take as much as several weeks to months before an approval is garnered. Moreover, providers may prove to be particularly strict and picky which is why many borrowers often end up declined.
But at the end of the day, choosing between spot factoring and traditional credit depends on one’s needs. Just remember that although these two both provide cash, they differ in a number of ways for instance the former is no liability (no collateral and no interest) while the latter is.