Factoring is not directly comparable with conventional financial instruments such as bank loans because of the presence of the management service component.
Factoring has two kinds of costs:
a financial cost (interest) on the loan that implicitly results from payment of a credit before it falls due; the interest rate applied by the Factor will be in line with market rates, taking into account the characteristics of the customer and the risk involved in the operations; and an administrative cost (commission) applied to management and, possibly, the guarantee of successful collection of a credit; the commission depends on the type of service offered and the characteristics (due date, amount, etc.) of the credits transferred.
The economic benefits of resorting to Factoring therefore depend on comparison of the conventional administrative and financial costs and those consequent upon Factoring.
It is also important to assess allocation of the funds which will be freed up by unfreezing credits. Companies may use funds paid in advance thanks to Factoring to pay their own debts or to boost sales.
"Financing growth" through Factoring underlines its benefits and particular features, and is in fact more commonly used by younger companies with strong prospects for growth and by customers who express particularly high levels of satisfaction with Factoring.