Receivables Exchange Vs Traditional Invoice Factoring

Eric Eagen wrote an interesting post earlier this week identifying some of the differences between the Receivables Exchange program and traditional invoice factoring. The healthcare factoring specialists at PRN Funding thought it was well-executed, however, we thought it might be helpful to add in some more information in favor of traditional invoice factoring:

Here’s a snip it from Mr. Eagen’s post:

Here are some key differences between the Exchange and factoring:

  1. The Receivables Exchange opens up the sale of receivables to a global community of investors in a real-time auction. Those investors compete to purchase your receivables, lowering your cost of capital. On the Exchange, you have access to many potential capital providers, not just one factoring company.
  2. You have complete control over the terms of your auction. You can set the discount fee and minimum advance amount, as well as the duration of the auction.
  3. You can choose what receivables to sell and when. You can sell one or multiple, and are not bound by the onerous contracts or minimums that come with invoice factoring.
  4. There are no personal guarantees or all-asset liens.
  5. And one more major difference: you are not required to notify your customers that their receivables are for sale. You control your valuable customer relationships.

Here are some of PRN Funding’s responses in favor of traditional invoice factoring:

  1. One could easily argue that thanks to the Internet, business owners always have access to many potential capital providers, not just one factoring company. Simply searching “factoring companies” on Google pulls back more than 1.5 million search results.
  2. When comparing and contrasting traditional factoring firms, entrepreneurs still have a say when it comes to choosing their terms. For example, if they’re only interested in working with a factor who advances 80 percent of the invoice or more, then they can choose to pass up on the factors who do not advance over 80 percent.
  3. Traditional factoring firms comes in all different shapes and sizes, and their funding programs vary across the board. For example, with PRN Funding’s healthcare factoring program, business owners have the ability to choose which invoices to sell, and we do not have any minimums or maximums.
  4. Once again, not all traditional factoring firms will require a personal guarantee or an all-asset liens. PRN Funding only requires a validity guarantee, and we’re able to file liens that are not all-assets.
  5. Finally, there are factoring firms that operate under a non-notification model, whereas a business owner’s customers are not notified that the receivables have been sold.

Of course, when comparing and contrasting working with the Receivables Exchange or with a traditional factoring firm, there are advantages and disadvantages for both. It’s entirely up to the business owner to decided how he/she wishes to proceed.