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Factoring vs. Traditional Financing
Banks occasionally make loans against a client's accounts receivable—when it fits the bank's standard lending guidelines. The client must meet the bank's credit and business growth criteria, adhere to standard lending ratios and have sufficient acceptable collateral. While a bank loan depends entirely upon a business' credit standing, in the majority of cases PCG looks past you to your customer, or the "debtor", for repayment of the invoices, relying upon the debtor's financial strength and payment history. A bank loan generates cash only once while factoring provides continual cash on an ongoing basis.
Example:
Two companies, each having $100,000 in accounts receivable, seek cash to grow their businesses. Company "A" goes to the bank and is granted a loan equal to the amount of the outstanding accounts receivable, walking away with $100,000 cash and an equal amount of fresh debt added to the company's financial statements. A year passes and Company "A" has burned through the $100,000 only to find themselves sorely needing another $100,000.
Will
the bank grant an additional loan?
Only if the company paid down the
existing loan sufficiently and on time, restrained growth to levels
acceptable to the bank and still meets the bank's ratios and lending
criteria.
Across town, Company "B," was turned down on their bank loan request so instead they sold their $100,000 in receivables to PCG. Company "B" was extended $100,000 but through factoring, they were extended additional $100,000 amounts each and every month for a year, eventually receiving benefit of $1.2 million ($100,000 times 12).
Company "B" used the money to increase sales, improve inventory turn cycles and was rewarded with astonishingly fast but manageable growth, all without incurring a penny of debt.
After 24 months, Company "B"'s
accomplishments and debt free status sufficiently impressed the banker
to qualify for bank financing under very favorable terms.