Fueling Growth: Invoice Factoring vs. Business Line of Credit for Small Business Cash Flow
Managing cash flow is the perpetual challenge for small business owners. When expenses are due but client payments are 30, 60, or 90 days out, businesses need quick, reliable access to working capital. Two popular and distinct solutions are invoice factoring and a business line of credit. Understanding the core difference between these methods—one is selling an asset, the other is borrowing money—is crucial for choosing the right tool to stabilize and accelerate your small business cash flow.
Invoice Factoring: Selling an Asset
Invoice factoring (or accounts receivable financing) is the sale of your outstanding customer invoices to a third-party financier (the factor) at a discount.
- How it Works: You generate an invoice, sell it to the factor for typically 80% to 90% of its value upfront, and receive the rest (minus fees) once the customer pays the factor.
- Best For: Companies with reliable, creditworthy B2B or B2G clients