If your business is waiting 30, 60, or even 90 days to get paid, cash flow can tighten quickly. Two popular solutions—accounts receivable financing and invoice factoring—allow you to unlock working capital tied up in unpaid invoices.
But what’s the difference?
In this guide, we’ll break down:
- How accounts receivable financing works
- How invoice factoring works
- Key differences side-by-side
- Pros and cons of each
- Which option is best for your business
If you’re evaluating funding options, this article will help you make an informed decision.
What Is Accounts Receivable Financing?
Accounts receivable financing (also called AR financing or receivables financing) is a type of business funding where you use your unpaid invoices as collateral for a loan or line of credit.
Instead of selling your invoices, you’re borrowing against them.
How It Works
- You issue invoices to your customers.
- A lender advances a percentage (typically 70%–90%) of the invoice value.
- Your customer pays you directly.
- You repay the lender the advanced amount plus fees.
You maintain control of collections, and your customers usually won’t interact with the financing company.
Key Features
- Structured like a loan or revolving line of credit
- You retain ownership of invoices
- You manage collections
- Requires stronger credit and financials
- Typically reported as debt on your balance sheet
What Is Invoice Factoring?
Invoice factoring is the sale of your unpaid invoices to a factoring company at a discount in exchange for immediate cash.
You’re not borrowing money—you’re selling an asset.
At EZ Invoice Factoring, businesses use factoring to get paid in as little as 24 hours.
How It Works
- You provide goods or services and issue an invoice.
- You sell that invoice to a factoring company.
- The factor advances 80%–95% of the invoice value.
- The customer pays the factoring company.
- You receive the remaining balance minus a small factoring fee.
Key Features
- Not a loan (no new debt created)
- The factor manages collections
- Approval is based primarily on your customer’s credit
- Fast funding (often same-day or next-day)
- Flexible—can factor specific invoices or your full ledger
Side-by-Side Comparison
| Feature | Accounts Receivable Financing | Invoice Factoring |
|---|---|---|
| Structure | Loan or line of credit | Sale of invoices |
| Creates Debt? | Yes | No |
| Who Collects Payment? | You | Factoring company |
| Approval Based On | Your business credit | Your customer’s credit |
| Funding Speed | Several days to weeks | 24–48 hours |
| Balance Sheet Impact | Liability | Off-balance-sheet sale |
Which Is Easier to Qualify For?
Invoice factoring is generally easier to qualify for.
That’s because factoring companies focus more on the creditworthiness of your customers—not your company’s credit score, time in business, or tax returns.
AR financing, on the other hand, usually requires:
- Strong business credit
- Financial statements
- Tax returns
- Solid operating history
If your company is new, growing rapidly, or recovering from credit challenges, factoring is often the more accessible option.
Cost Comparison: Which Is More Expensive?
Costs vary depending on industry, volume, and risk profile.
Accounts Receivable Financing Costs
- Interest rates similar to traditional lending
- Additional fees (origination, maintenance, wire fees)
- Minimum usage requirements may apply
Invoice Factoring Costs
- Transparent factoring fee (often 1%–4% per 30 days depending on risk and volume)
- No long-term debt
- No hidden compounding interest
When comparing costs, look beyond just the percentage. Consider:
- Speed of funding
- Administrative savings
- Credit protection (in non-recourse factoring)
- Flexibility
For many growing B2B companies, the operational benefits of factoring outweigh the slight difference in cost.
Industries That Commonly Use Factoring
Invoice factoring is especially popular in industries with long payment cycles, including:
- Trucking and freight companies
- Staffing and payroll-heavy businesses
- Construction subcontractors
- Manufacturing
- Oil and gas service providers
- Government contractors
- Security and janitorial companies
These industries rely on predictable cash flow to cover payroll, fuel, materials, and operating expenses.
When Accounts Receivable Financing Makes Sense
AR financing may be right if:
- You have strong financial statements
- You want to keep collections fully in-house
- You qualify for lower interest rates
- You don’t want customers notified
It’s often used by larger, established businesses with stable financial performance.
When Invoice Factoring Is the Better Choice
Invoice factoring is ideal if:
- You need fast working capital
- Your business is growing quickly
- You have limited credit history
- You want to outsource collections
- You prefer not to take on debt
Factoring turns your receivables into immediate cash without waiting 30–90 days.
Recourse vs. Non-Recourse Factoring
When exploring invoice factoring, you’ll also encounter:
- Recourse factoring – You buy back invoices if your customer doesn’t pay.
- Non-recourse factoring – The factoring company assumes the credit risk (if the customer becomes insolvent).
Non-recourse factoring offers additional protection but may carry slightly higher fees.
Frequently Asked Questions
Is accounts receivable financing the same as factoring?
No. AR financing is a loan secured by invoices. Factoring is the sale of invoices for immediate cash.
Does factoring hurt customer relationships?
Reputable factoring companies handle collections professionally. Many customers are already familiar with factoring, especially in industries like trucking and staffing.
Is factoring considered debt?
No. Invoice factoring is not a loan and does not create debt on your balance sheet.
How fast can I get funded?
With the right factoring partner, funding can occur in as little as 24 hours after invoice verification.
The Bottom Line
Both accounts receivable financing and invoice factoring help improve cash flow—but they work very differently.
If your business needs:
- Fast funding
- Flexible approval
- No new debt
- Simplified collections
Invoice factoring may be the smarter solution.
If you have strong financials and prefer a traditional lending structure, AR financing could work.
The key is choosing the solution that supports your growth—not restricts it.
Ready to Turn Your Invoices Into Cash?
At EZ Invoice Factoring, we specialize in fast, transparent funding solutions tailored to B2B businesses across multiple industries.
- Same-day approvals
- Funding within 24 hours
- No long-term contracts required
- Competitive, straightforward pricing
Stop waiting to get paid. Start using your receivables to grow.
Contact EZ Invoice Factoring today for a free funding consultation.
