“They” call it a Factoring Line- The ACH Loan Difference

Lately as a Sales Professional in the Factoring world, I have been running into the ACH loans, also called Merchant Cash Advances, as an alternative option for fast cash in businesses. There is definitely a valuable place for such a loan and it is a convenient tool for the right business. “But What is the difference between Factoring and these ACH loans?” my clients will ask.
I have a defined opinion of when one is better than the other so I am going to share.

Business to Business Receivables Factoring is for a business that is first and foremost GROWING, Profitable, and has Opportunity it may be missing because it does not have the ability to hire the staff or buy the product to fulfill the orders. The business owner is walking away from business instead of taking on new clients simply because cash flow is inconsistent. Factoring invoices solves this dilemma. Every time an invoice is created, the business can turn it into the Factoring Company for cash now, and pay a small amount on the face value of the invoice for the ability to have the cash at hand today, and not 60 days from now when the customer would normally pay. And this is not a loan, it is a true purchase so the cash goes to the asset side of the balance sheet, and the receivable drop off all together.
Also, with factoring, a business is getting the convenience of outsourcing the receivables collections department, and the factor sets up a lock box to ensure payments are made directly to them. The factor will also provide valuable credit advice and sometimes credit guarantees on the receivables! This can keep a business safe as it expands.

An ACH loan on the other hand is a convenient tool when a business has either businesses or consumers as clients. It is used most efficiently when the business can expand and secure some sort of bump in additional sales that will enhance the businesses overall sales volume. For example, an addition to a restaurant that will increase traffic flow and increase sales. A new piece of equipment that will streamline the production of a product and increase sales for the business. A down payment or purchase of a delivery truck that will allow the business to stop renting or outsourcing the expensive costs of delivery in the business dropping profits to the bottom line of the business. Or, a business could purchase some retail inventory for the season.
This program is not a band-aid for paying suppliers when a credit line limit has been reached and you have more orders. This program is not for paying taxes because you didn’t save the money throughout the year. This is not for a business that does nothing different and expects to be able to carve out a daily repayment and survive!

A business can ask the question, “What would I do with the money?” The decision is in the answer. Look closely at the need for money, what is necessary for the business and then start the process of applying for services.


Robinn Mikalic, Factoring Expert