Payoffs

Before getting started with invoice factoring, does the business have an existing loan with a bank? An important calculation to be examined when contemplating accounts receivable factoring is how to pay off a previous loan. Many times businesses have a line of credit with a bank which they have outgrown. Seeking invoice factoring may be a suitable replacement, but the UCC-1 needs to be free and clear. The question becomes, can the business withstand the loss of income due to paying off the existing loan? Because the accounts receivable has been used as collateral for the old loan, it must be paid off in order for the factoring company to begin making advances on the invoices. That payoff amount will come out of the operating budget. Most companies have spent that slowly over a long period of time. Having to pay it back all at once can be painful, and makes the decision to use invoice factoring an important consideration.