Compare your options
Invoice factoring vs a line of credit: which fits a business that bills on terms?
Factoring is underwritten on your customers. A line of credit is underwritten on you. If your customers are stronger than your balance sheet, factoring usually wins.
Short answer: if the problem is specifically that customers pay in 30 to 90 days, factoring is built for exactly that. If the problem is general and unpredictable, take the line.
Side by side
| Invoice factoring | Line of credit | |
|---|---|---|
| Underwritten on | Your customers' credit | Your business and deposits |
| Size limited by | Your outstanding invoices | Your revenue and credit profile |
| Grows when | You invoice more | You reapply for a higher limit |
| Good for | B2B with slow-paying customers | Any uneven cash flow |
| Customer contact | Sometimes, depending on the arrangement | None |
Why factoring reaches businesses a line cannot
A young company with thin credit but blue-chip customers is a hard file for a line of credit and a straightforward one for a factor, because the factor is really underwriting the customer who owes the money. That is why factoring is common in trucking, staffing, construction and commercial cleaning.
The trade-off
Factoring costs more than a bank line and less than most advances, and it scales with your invoicing rather than being capped by your own balance sheet. If you are turning down work because you cannot fund the gap, that trade is usually worth making.
More on invoice factoring and lines of credit.
Questions owners ask
Will my customers know I am factoring?
It depends on the arrangement. Some are notification-based, where the customer pays the factor directly, and some are not. Ask which one you are signing.
Can I factor just one invoice?
Often yes. Spot factoring covers a single invoice rather than your whole book, though pricing is usually higher per invoice.
Do I need good credit to factor?
Far less than for other products. Your customers' ability to pay matters more than your own credit history.
Related
- Working capital vs line of credit
- MCA vs business loan
- Financing equipment vs paying cash
- Who actually lends?
- Merchant Fund Express
All business funding options › · Calculators ›
General information, not financial or legal advice. Terms vary by lender and business.
If slow-paying commercial customers are the problem, Merchant Fund Express factors invoices for independent businesses and underwrites on your customers rather than on you.
Funding subject to approval.