Overdraft Facility
An overdraft facility was historically considered a traditional working capital facility. However, due to certain court rulings regarding bank security this is no longer the case. If a business is trading with other businesses on credit terms an invoice finance facility is usually the most suitable solution.
Where an overdraft is a fixed facility that needs to be renegotiated when an increase is a required a factoring facility will grow in line with your sales.
Factoring also allows you to outsource the credit control which allows you to focus on growing your business. On that basis a factoring facility is far more of a service when compared to an overdraft facility.
In terms of costs an overdraft will attract an arrangement fee and an interest rate. This can be compared to a service fee and discounting charge when looking at a factoring facility.
With regards to security an overdraft will typically be secured in full be the personal security of the business owners or directors. A factoring facility is primarily secured on the debtor book.
