How are factoring companies different from banks?
Any bank that performs depositary services must be regulated by the federal government. Federal regulation requires banks to comply with very stringent reporting and liquidity measurements. When a bank lends money, they also must require their clients to comply with many provisions such as minimum net worth, monthly financial reporting, annual audits and other proof of financial stability. A factoring company generally makes loans on the accounts receivable and does not perform depositary or other banking functions. Thus, factoring companies do not have to comply with the same type of regulations banks do. This gives factoring companies the flexibility to offer very innovative and flexible financing solutions to their clients. Banks often refer businesses to factoring companies for clients they are unable to provide financing. For example, banks usually require a business to have positive cash flow in the previous three years. If a business has experienced some type of negative cash fl
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