Invoice Factoring vs. Line of Credit: Compare Business Funding
Invoice factoring vs. line of credit — both solve working capital gaps, but through very different mechanisms. Compare side by side.
Invoice Factoring: Invoice factoring converts outstanding B2B invoices into immediate working capital — the factor advances a percentage and collects from your customers. Business Line of Credit: A revolving business line of credit lets you draw funds as needed up to a set limit and only pay interest on what you use.
Invoice Factoring vs. Business Line of Credit — side by side
| Invoice Factoring | Business Line of Credit | |
|---|---|---|
| Typical amount | $10,000 – $5,000,000 | $10,000 – $500,000 |
| Typical term | 30 – 90 days per invoice | Revolving (12 – 24 month draw period) |
| Rate | 1% – 5% per 30 days | 8% – 36% APR |
| Minimum time in business | 6 months | 6 months |
| Minimum credit score | No minimum (based on your customers) | 580+ |
Which is right for your business?
- Invoice Factoring tends to fit best when you need payroll or supplier payments.
- Business Line of Credit tends to fit best when you need ongoing cash flow or seasonal inventory.
Frequently asked questions
Which is cheaper — factoring or a line of credit?
A line of credit is usually cheaper on an APR basis (8–36% vs. the 12–60% effective APR of factoring). However, factoring is accessible without strong personal credit and scales with revenue. For businesses that qualify for a credit line, it is the more cost-effective choice.
Can I factor only some invoices?
Spot factoring allows selective factoring of individual invoices, but most factoring companies prefer to factor all invoices from submitted clients to reduce adverse selection risk. Full-ledger factoring typically gets better discount rates than spot factoring.
Does factoring affect my ability to get a line of credit?
Factoring companies file a UCC-1 against your receivables, which a line of credit lender will see. Some lenders require the factoring UCC to be subordinated or terminated before approving a credit line. Disclose any factoring relationships when applying for other credit facilities.
