Current account vs. Factoring: Which option suits your company?
The difference between current account and factoring. As an entrepreneur, you often face the challenge of financing your business in the most efficient and effective way. A frequently asked question is: which form of financing should I choose?
Current account credit at the bank
A current account facility with the bank is a revolving credit that allows you to be overdrawn on your business account. A current account is linked to your business account and you can withdraw money up to the overdraft limit of the account. This is for an indefinite period of time. In other words, withdraw and repay money flexibly. However, obtaining a current account with a bank can be more difficult than factoring, especially if your company has (temporarily) underperformed. Repayment of the loan amount is made over a certain period of time with periodic interest payments. A current account is generally cheaper than factoring and suitable for both B2B and B2C activities.
Important points about a current account are:
- Repayment of the loan amount over a certain period of time with periodic interest payments.
- Generally cheaper than factoring.
- Funding potential is determined by banks based on performance and company size.
- Approval process can take a long(er) time.
- Approval is based on your company's operational and credit history.
- Startups rarely qualify for a current account.
- Suitable for both B2B and B2C activities.Geschikt voor zowel B2B als B2C-activiteiten.
Use of factoring
Factoring is a flexible financing solution, also known as accounts receivable financing. It enables companies to release cash flow sooner by getting their unpaid receivables (debtors) paid out faster. With factoring, a factoring company buys your outstanding invoices and you receive payment immediately. This gives you instant access to cash, allowing you to grow your business, pay creditors faster or make investments. Factoring offers speed and flexibility at a discount. But what makes factoring so attractive compared to current account credit?
Important points about factoring are:
- Sale of invoices to the factoring company.
- No debt to repay.
- Unlimited financing potential as long as there are good invoices.
- Fast approval and direct access to money.
- Approval based on the creditworthiness of your customers.
- Startups can also qualify for factoring.
- This form of financing is usually more expensive than a current account
- B2C invoices are usually not eligible for factoring, this is also the case with Boozt24.
The advantages of factoring over current account credit
1. Fast and Secure Financing: Factoring gives you instant access to liquidity by selling your outstanding invoices.
2. Reduced debtor risk: With factoring, the factoring company takes over the debtor risk, protecting you against bad invoices. This is in contrast to current account credit, where you are responsible for collecting outstanding invoices and managing the debtor risk.
3. Accounts Receivable Management: Factoring companies often provide accounts receivable management, taking care of invoicing, collecting payments and following up on outstanding invoices. This allows your company to concentrate on its core activities. But outsourcing debtor management has both advantages and disadvantages. So make sure you make the right choice for your company.
4. Growth potential and flexibility: Factoring grows with your company. As you grow and generate more invoices, so does funding. Current account credit, on the other hand, often has a fixed limit, which can place restrictions on the growth of your business.
5. Improved cash flow and liquidity: Factoring offers instant cash flow improvement by quickly receiving payment for your outstanding invoices. This allows you to pay your suppliers on time, make investments and take advantage of growth opportunities. However, current account credit can burden your cash flow with interest costs and uncertainty about the limit.
In short, factoring offers numerous advantages over current account credit. It offers fast, secure financing, reduces debtor risk, can provide professional debtor management and offers flexibility for growth. It improves cash flow and liquidity, giving your business room to thrive. But both a current account and factoring have advantages and disadvantages. It is wise to compare the options based on the performance of your company. Boozt24 works with independent advisors who can help you with this. Factoring could be the next step to financial growth and success for your business!
As an SME entrepreneur you are probably familiar with the term 'prohibitions on pledges'. But what does this actually mean and how can it affect your business? Ban on pledging bans creates opportunities for SME entrepreneurs. What does this mean for you?