Working Capital Loan vs. Invoice Factoring: Compare for B2B

Overview

This comparison requires a root-cause analysis: why does your business need working capital? If the answer is "we have invoices outstanding but our customers have not paid yet," invoice factoring is the surgical solution. If the answer is "we have structural cash flow needs unrelated to our receivables timing," a working capital loan is more appropriate. Invoice factoring converts your outstanding B2B invoices to immediate cash at 1–5% per 30 days. If your customers pay in 45 days and you factor those invoices, you pay approximately 1.5–7.5% for the advance (for 45 days). For a business with $300K in outstanding receivables at any given time, this converts directly to $270K–$290K in immediate cash. The cost scales with how long invoices remain outstanding — fast-paying customers mean lower factoring costs. A working capital loan provides capital at 15–80% APR on an annualized basis regardless of what your receivables look like. For a $300K loan at 30% APR on a 12-month term, you pay $90,000 in interest. For the same effective capital need solved by factoring 30-day invoices at 1.5%, you pay $4,500 per month in factoring fees — dramatically less over the same period. For B2B businesses, factoring is almost always cheaper and more appropriate when receivables are the cause of the cash flow constraint.

Logistics company with $200K in 60-day freight bills outstanding

Invoice Factoring The cash is earned, just not collected. Factoring the freight bills provides $180K–$190K in immediate cash at 2–5% cost vs. 15–80% APR on a working capital loan for similar capital.

B2C retail company needs $100K for pre-season inventory

Working Capital Loan Retail businesses have no B2B invoices to factor. A working capital loan provides the lump sum for inventory purchase.

Frequently asked questions

What is the minimum to start invoice factoring?

Most factoring companies require at least $25,000–$50,000 in monthly invoiceable receivables to be economically worthwhile for both parties. Some specialty factors serve smaller volumes, particularly in specific industries like trucking or staffing.

Does my business need a minimum credit score to factor invoices?

No — factoring companies underwrite primarily on your customers' creditworthiness, not yours. Your business may have challenged credit and still qualify for factoring, because the factor is relying on your customers to pay, not you.