Factoring, authorised overdraft, short-term loan: which solution to choose for your situation?
A client who pays 45 days late, an exceptional order to finance, a tax deadline that falls at the wrong time: one-off cash needs are part of daily life for most small businesses and SMEs. Faced with these pressures, three solutions come up most often: factoring, an authorised overdraft and a short-term cash loan. Each one fits a different situation, with its own advantages, limits and cost. Here is how to see more clearly before you choose.
The authorised overdraft: the simplest solution, for short one-off needs
An authorised overdraft is an arrangement negotiated with your bank that lets you take your account temporarily into the red, up to a limit agreed in advance.
Advantages: it is the quickest solution to use (it is already in place, you simply draw on it), with no paperwork at the time you need it, and it suits short cash flow gaps of a few days to a few weeks.
Limits: the cost can climb quickly if the overdraft is used over a long period, between overdraft interest and the peak overdraft fee. The authorised limit is also often modest, and its amount depends on the relationship of trust built with your bank.
Who is it for? An authorised overdraft works well for one-off, short-term needs, for example to absorb an isolated late payment, provided you do not turn it into a permanent way of financing your business.
Factoring: turning your customer invoices into immediate cash
Factoring involves assigning your customer invoices to a specialist company (the factor), which advances you their value, generally between 80 and 90% as soon as the invoice is issued, before handling collection from your customer itself.
Advantages: this solution injects cash quickly, without waiting for your customers to actually pay, and it can cover part of the risk of non-payment depending on the formula chosen. It is particularly useful for businesses that work with long payment terms (often 30, 45 or 60 days) or that are growing fast, where working capital needs increase with revenue.
Limits: the cost (factoring fee and financing charges) is generally higher than a standard overdraft, and the factor contacts your customers directly for collection, which may be perceived differently depending on your business relationship with them. Setting it up also takes a little longer than a simple overdraft.
Who is it for? Factoring is particularly suited to businesses that invoice a lot of B2B work with long payment terms, and that need to smooth their cash flow over time rather than deal with a one-off incident.
The short-term cash loan: for an identified, dated need
A short-term cash loan is a standard loan, usually repayable over a few months to two years, designed to finance an identified need: a large order, a one-off investment or an anticipated seasonal dip in activity.
Advantages: repayments are fixed and predictable, which makes budget planning easier, and the rate is generally more favourable than that of a prolonged overdraft.
Limits: unlike an overdraft or factoring, getting the loan takes time (preparing the application, analysis by the bank or lender) and it is therefore not suited to an urgent need. It also requires sufficient visibility on your future ability to repay.
Who is it for? A short-term loan suits anticipated, quantifiable needs rather than last-minute surprises.
How to choose between these three solutions?
Three questions help guide the choice: is the need one-off or recurring? Do you have time to plan ahead, or must the cash be available immediately? Is the need directly linked to customer invoices awaiting payment, or to a broader project?
In practice, a brief, unexpected need is often handled with an authorised overdraft; a recurring need linked to long customer payment terms points towards factoring; a one-off but anticipated need, such as an investment, is better suited to a short-term loan. These solutions are not mutually exclusive either: many businesses combine several tools depending on the situation.
Anticipate rather than react: the key role of cash flow tracking
Whichever solution you are considering, one point is common to all three: the earlier you identify a cash need, the more options and bargaining power you have with your bank or a factor. That is what regular cash flow tracking is all about, with clear visibility on expected receipts, overdue invoices and your forecast balance at 30, 60 or 90 days.
With Dirigeoo, your Cash Flow & Finance module centralises this tracking in real time, alongside your invoicing, purchases and projects, so you can spot cash flow pressure before it becomes critical — and choose the most suitable financing solution calmly rather than in a rush.