Getting a conventional line of credit with a bank instead of factoring receivables might not always be the best growth strategy. If your company is a start-up and growing rapidly there is a very good chance that the credit limit the bank is offering could ultimately hinder your growth. This usually happens when business owners are completely unaware of the opportunity to raise capital through financing receivables.
Using the line of credit, when you run up to the credit limit you have no other capital options. Unless you can take a hit to your cash flow and payoff the line, you now have limited access to additional capital. Many owners are under the mistaken impression that they can have bank financing and factoring going on at the same time. Except in rare cases this is impossible.
Also a business needs to have good discipline to use a line of credit. To properly use a line of credit you should take money out but then replace the funds with income. By chipping away and not replacing money coming out of the line of credit, it becomes more and more difficult to fully repay the line.
When factoring accounts receivable generally there is no top credit limit. As long as you have additional invoices, you can keep financing them. This allows your company to grow and the capital availability to grow in a corresponding manner. And then at a point where you have a critical mass of regularly reoccurring fresh invoices, it’s time to graduate to conventional bank financing.