What are the Advantages and Disadvantages of Business Factoring Through the Bank?

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What are the Advantages and Disadvantages of Business Factoring Through the Bank?

Updated: 29th January 2021

When thinking about factoring as a way to access regular amounts of working capital, some business automatically consider their bank as a suitable lender. Having a strong working relationship with your bank is vital, and if they have a department dedicated to business factoring, it can be a good solution to your cash flow needs.

Although the invoice finance market has opened up in recent years, and there are now a range of specialised lenders on the high street and online, business owners sometimes have more confidence when putting finance matters in the hands of bank staff they know and trust.

So what are the specific advantages and potential drawbacks of choosing your bank as an invoice finance lender?

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Advantages of factoring with your bank

  • Being a larger organisation, your factoring bank may have access to better rates and fees due to its sheer size and influence on the market. Once an agreement has been made, you also have the reassurance of being able to rely on an established institution rather than a smaller newcomer to the market.
  • As banks operate using specific Relationship or Client Managers, it is highly likely that a direct access phone line will be available, so you don’t have to spend time navigating frustrating telephony systems to have your questions answered.
  • Some of the big banks offer a paid-for trial period, and will refund your service fees if you’re not happy with their product. This makes it a little less restrictive, as invoice factoring generally involves long contract periods.
  • Tight regulation on the banks means that transparency is a key objective for them in order to meet legislative demands. Fast-growing newer banks such as Aldermore and Metro may also offer fresh ideas and systems to help you develop your business using bank factoring.
  • You gain access to the wealth of knowledge in each banking institution as a whole, and within each department. Keeping all your business activities under the bank ‘umbrella’ can help your business operate smoothly, and enable an easier introduction to other financial services over time.

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Disadvantages of using your bank for invoice finance

Some of the larger banking institutions are viewed as slow to react to changes in the market, and have a poor reputation for response times. Potentially not as agile as some of their smaller independent competitors, your growth may be dependent on being able to adapt quickly, which could make bank discounting unsuitable.

  • By choosing your bank to factor invoices, you could miss out on opportunities that other lenders offer - for example, the additional flexibility of selective factoring online using a marketplace similar to crowdfunding. Depending on your type of business, you may prefer to sell your invoices to individual lenders rather than a single company.

Real Business Rescue operates from a network of 100 UK offices, and provides independent advice on cash flow finance. Call one of our expert team to arrange an appointment - we’ll be able to put you in touch with lenders aligned to your specific market.

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