> None of that indicates to me that there's any difference at all
Really? There's a big difference in terms of structuring, risk, ownership etc.
When you sell the receivables, your risk is gone. Whether your customer ends up paying or not is no longer your concern. Whether he pays two months late, is no longer your concern. Whether his company goes bankrupt, or he flees the country, is not a concern. You got paid, your financial relationship with your customer just ended. You have no obligations or responsibilities. You need not sue him, chase him, you need not collect payment.
That's NOT a loan. You just sold your receivable to a collecting company. In reality, you didn't borrow money, you SOLD a loan that in essence your customer had with you, but now has with someone else.
When you borrow money, you simply borrowed money. It changed NOTHING about the fact that you still haven't gotten paid. You're still at risk of a customer not paying, you still need to chase him, maybe even sue him. You still haven't actually earned any money. All you did was increase your risk by borrowing money that you have to pay back even if you don't end up getting paid in the end.
The former is a sale of your risk, the latter is a loan. They're not the same and not at all identically structured. In fact in one way they're completely opposite.
What is preferable depends. The former carries less risk, but the discount is higher than the interest you tend to pay. For example to sell a 30-day receivable might cost you 3%, which is a lot of money compared to the <1% you pay to borrow money for 30 days, especially with some collateral (which reduces your interest rates as the risk with collateral is lower, but doesn't absolve you from your debt if the collateral ends up being worthless!).
So these are two different products with different cost/benefit rates, one offloads a lot of risk and alleviates cash flow issues at a high price, the other doesn't really reduce risk but alleviates cash flow problems at a relatively low price.
Really? There's a big difference in terms of structuring, risk, ownership etc.
When you sell the receivables, your risk is gone. Whether your customer ends up paying or not is no longer your concern. Whether he pays two months late, is no longer your concern. Whether his company goes bankrupt, or he flees the country, is not a concern. You got paid, your financial relationship with your customer just ended. You have no obligations or responsibilities. You need not sue him, chase him, you need not collect payment.
That's NOT a loan. You just sold your receivable to a collecting company. In reality, you didn't borrow money, you SOLD a loan that in essence your customer had with you, but now has with someone else.
When you borrow money, you simply borrowed money. It changed NOTHING about the fact that you still haven't gotten paid. You're still at risk of a customer not paying, you still need to chase him, maybe even sue him. You still haven't actually earned any money. All you did was increase your risk by borrowing money that you have to pay back even if you don't end up getting paid in the end.
The former is a sale of your risk, the latter is a loan. They're not the same and not at all identically structured. In fact in one way they're completely opposite.
What is preferable depends. The former carries less risk, but the discount is higher than the interest you tend to pay. For example to sell a 30-day receivable might cost you 3%, which is a lot of money compared to the <1% you pay to borrow money for 30 days, especially with some collateral (which reduces your interest rates as the risk with collateral is lower, but doesn't absolve you from your debt if the collateral ends up being worthless!).
So these are two different products with different cost/benefit rates, one offloads a lot of risk and alleviates cash flow issues at a high price, the other doesn't really reduce risk but alleviates cash flow problems at a relatively low price.