Key takeaways
- Both turn unpaid invoices into cash sooner.
- Factoring means a third party collects from your customers.
- Know whether the deal is recourse or non-recourse.
Best for
B2B businesses waiting 30–90 days to get paid.
Invoice financing
You borrow against outstanding invoices and keep collecting from your customers yourself. When they pay, you repay the advance plus fees.
Invoice factoring
You sell invoices to a factoring company, which advances a portion and collects directly from your customers. The remainder, minus fees, is released when the customer pays.
Questions to ask
Is it recourse (you're responsible if a customer doesn't pay) or non-recourse? How are fees calculated, and how often?
Pros and cons
Advantages
- Based on customer credit, not just yours
- Fast access to earned revenue
- Scales with sales
Things to weigh
- Fees can add up over time
- Factoring means customers deal with a third party
- Only works for invoiced sales
Frequently asked questions
Will my customers know I'm using factoring?
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Usually yes, because the factoring company collects payment. With invoice financing, you typically keep collecting yourself.
What does recourse mean?
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In a recourse arrangement, you're responsible if the customer doesn't pay. Non-recourse shifts some of that risk, often at a higher cost.
Does my credit matter?
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Your customers' payment reliability matters a lot, though your business profile is still reviewed.
This guide is general educational information, not financial, legal, or tax advice. Terms, requirements, and availability vary by lender and your situation.