Accounts Receivable Financing and Factoring

Accounts Receivable Financing and Factoring#

Factoring: sell your invoices to a factor at 80-90% of face value immediately, receive the remaining 10-20% (minus fees) when the buyer pays. Cost: 1-3% per month of invoice value. Two types: recourse (you take back unpaid invoices — cheaper) and non-recourse (factor absorbs credit risk — more expensive). Best for: companies growing faster than cash flow supports.

Factoring vs Bank Line of Credit#

Bank line: lower interest (6-10% annual) but requires collateral, financial covenants, and 3-6 month setup. Factoring: higher cost (12-36% annualized) but available in days, no balance sheet debt, and grows with sales. Decision: if you qualify for bank financing, it's cheaper. If you're growing fast, have thin financial statements, or need funding in days, factoring fills the gap.

Invoice Discounting vs Full-Service Factoring#

Invoice discounting: you retain control of collections, borrowing against invoices confidentially — your customers don't know. Full-service factoring: the factor manages collections, credit checks, and ledger management — customers pay the factor directly. Discounting is cheaper and maintains relationships. Factoring reduces admin burden. Choose based on whether you have a capable credit/collections team.

• Convert receivables to immediate cash at 1-3% discount — factoring provides working capital without traditional debt