factoring is an indefinite financing, as the money that the factoring company pays remains in the company's turnover; a loan is a fixed-term instrument.
The loan is repaid with the company's own funds, taken from money circulation, while factoring doesn't have such problem, since the debt on monetary claims is repaid from funds received from Buyers.
When using a loan there is always a deposit with a limited capacity plus the deposit is always discounted. Factoring does not set collateral for financing.
Level of risk:
Factoring without the right of recourse completely frees the Client from the risk of non-payments of the Buyer. The risk passes to the factoring company.
Received financing can be spent without control of the targeted use of funds by the factoring company.
The funding limit for factoring can be increased as sales volumes increase.
Reflected in the balance sheet structure:
Factoring is not reflected in the balance sheet structure as a credit obligation.
The method of the commission payment :
For a loan the commission is paid using the working capital of the company. For factoring the commission can be paid from the 2nd payment upon receipt of funds from the Buyer, or it can be offset from the amount of paid financing
There are no defined limits:
In most cases, the factoring limit is set on the Debtor and utilzed by the Client as the need arises.
Factoring is loyal to the representatives of SMEs:
Almost any company can use this financial instrument, since the risk is mainly assumed by the Buyer, who, as a rule, has a higher credit rating than the Supplier.