Unlock the Cash Tied Up in Your Receivables.
Invoice Financing
The Guide
Trust Financing Solutions knows how to put your money back to work fast. We specialize in cash flow solutions for businesses, from startups to financially troubled or even mature companies seeking assistance.
We understand how frustrating it is when your money is tied-up in unpaid invoices for over 30-60-90 or even 120+ days. When those delays happen it can become a challenge to pay vendors, order additional material, meet trade obligations or even meet payroll. There is a solution. It is called Factoring or Accounts Receivable Financing – The Guide explains the difference between the two and when to choose one over the other.
Business owners do this to get paid upfront in days! No longer do you have to wait weeks to get your money from invoices.
Accounts Receivable Financing vs. Factoring
A practical guide for borrowers deciding which option is best
Both A/R financing and factoring help businesses unlock cash tied up in invoices – but they are fundamentally different tools. Choosing the right one depends on the borrower’s credit strength, margins, customer base, and need for control.
1. What Is Accounts Receivable (A/R) Financing?
A/R financing = a loan or line of credit secured by outstanding invoices.
- The borrower keeps ownership of the receivables.
- The lender advances 70–90% of eligible invoices.
- The business continues collecting payments from customers.
- The loan is repaid as customers pay those invoices.
Key traits
- Works like a secured revolving line of credit.
- Based on the business’s creditworthiness and clean financials.
- Requires:
- A/R aging reports
- Financial statements
- Verification of invoice quality
- Typically lower cost than factoring.
Best for
- Businesses with stronger credit.
- Companies with established internal A/R controls.
- Firms wanting to retain customer relationships.
2. What Is Factoring?
Factoring = selling your invoices to a factoring company at a discount.
- The factor now owns the receivables.
- The factor immediately advances 70–95%.
- When the customer pays the factor, the remaining amount (minus fees) is released.
Key traits
- Transaction is a sale, not a loan.
- The factor often manages collections, sometimes contacting customers.
- Approval is based heavily on your customers’ credit.
- Typically more expensive than A/R financing.
Best for
- Startups or newer businesses that lack strong credit.
- Companies with thin financials or prior losses.
- Firms with concentration risk (one or two major customers).
- Rapid-growth businesses that have outpaced working capital.
3. How to Decide: A/R Financing vs. Factoring
Choose Accounts Receivable Financing When:
- You want a line of credit structure.
- Your financials are clean (no major tax liens, judgments, etc.).
- You have good internal invoice/collections processes.
- You want to keep control of customer communication.
- You want lower fees (prime + margin instead of a discount rate).
Choose Factoring When:
- You can’t qualify for bank financing or A/R financing.
- You need fast decisions and funding.
- Your customers (not you) have excellent credit.
- You do not mind the factor contacting customers.
- You have urgent cash-flow needs.
4. Cost Comparison (Typical)
| Feature | A/R Financing | Factoring |
|---|---|---|
| Structure | Loan/LOC | Sale of receivables |
| Advance Rate | 70–90% | 70–95% |
| Cost | Prime + spread (8–15%) | 1–5% per invoice per 30 days |
| Control of A/R | Borrower controls | Factor may control |
| Primary Underwriting Focus | Borrower strength | Customer strength |
| Best Use | Growing stable companies | Thin credit, rapid growth |
5. Industry Observations (From a Commercial Loan Advisor Perspective)
Why borrowers often choose A/R Financing:
- They don’t want customers thinking they’re in trouble.
- They want a dependable revolving LOC as they grow.
- It’s easier to graduate from A/R financing to a bank line of credit later.
Why borrowers choose Factoring:
- They need funding yesterday.
- They have blemished credit or tax issues.
- They lost their line of credit or were declined.
- Their customers are large, stable entities (e.g., Amazon, Walmart, DoD).
Factoring is often a bridge solution until the business matures and can qualify for traditional A/R financing or bank financing.
6. Bottom Line
A/R Financing = Cheaper, more control, requires stronger financials.
Factoring = Faster, more flexible, more expensive — ideal for high-growth or stressed borrowers.
Borrowers should consider overall business health, internal A/R processes, customer relationships, and how quickly they need capital.
Accounts Receivable Financing vs. Factoring
Which Working Capital Solution Is Right for Your Business?
Trust Financing Solutions – Helping Business Owners Access Smart Capital
Quick Comparison Chart
| Feature | A/R Financing | Factoring |
|---|---|---|
| What It Is | A line of credit secured by your unpaid invoices. | You sell your invoices to a factoring company for immediate cash. |
| Who Controls the Invoice | You keep ownership and handle collections. | The factor takes ownership and may collect directly from your customers. |
| How Much You Get Upfront | 70 – 90% of eligible invoices. | 70 – 95% of the invoice value. |
| When You Get the Rest | When your customer pays you. | When your customer pays the factor (minus fees). |
| Cost Structure | Interest rate (usually prime + a margin). Lower cost. | Discount fee (1–5% per 30 days). Higher cost. |
| Approval Focus | Your business credit, financials, and A/R history. | The credit strength of your customers. |
| Speed of Funding | Fast (1–2 weeks to set up; ongoing draws in 24–48 hours). | Very fast (1–5 days to set up; same-day funding common). |
| Customer Interaction | Your customers keep paying you—no disruption. | Customers pay the factor; some borrowers prefer privacy, some don’t mind. |
| Best For | Stronger companies with good financial controls. | Startups, fast-growth firms, or businesses with challenged credit. |
| Typical Use Cases | Smooth cash flow, scaling operations, covering payroll, buying inventory. | Emergency cash flow, turning large invoices into cash, funding rapid growth cycles. |
| Long-Term Impact | Builds toward traditional bank financing. | Often used as a bridge to A/R financing or bank lines. |
Which Option Fits You Best?
Get the Guide Here – for reference
Choose A/R Financing If You Want:
- Lower cost funding
- To keep full control of customer relationships
- A stable line of credit as the business grows
- A path to bank financing later
Choose Factoring If You Need:
- Fast funding despite credit challenges
- Cash today for invoices due in 30 – 90 days
- A lender that cares more about your customers’ credit than yours
- Working capital to support rapid growth
Simple Summary for Borrowers
- A/R Financing = Lower-cost line of credit using your invoices as collateral.
- Factoring = Sell your invoices to get paid right away – even if your credit is weak.
Both can be powerful tools. The best choice depends on your goals, credit profile, and how quickly you need cash.
Use The Money To…
- Fund Payroll or Other Operating Expenses
- Purchase Inventory
- Take Advantage of Bulk/Early Payment Discounts
- Fund Expansion and Growth
- Respond to Seasonal Demands and Opportunities
- Take on That Large New Account with Confidence
Factoring Clients
- Suppliers
- Manufacturers
- Service Providers
- Subcontractors
- Construction
- Telecommunications
- Marketing Companies
- Furniture Companies
- Medical Industry
- Home Health Care
- Computer Industry
- Trucking Industry
- Food Industry
- Security Companies
- Commercial Cleaning Companies
- Clothing Companies & More!
Benefits To You
- Cash in 24 Hours
- No Personal Guarantees
- Avoid Paying Late Fees to Others
- We Finance Any Type of Business
- Credit Insurance on Your Clients – at No Cost To You
- No Arbitrary Loan Board Decisions
- No Fixed Payments
- As Sales and Receivables Increase, Funding Increases
- Focus On Your Business, Not Collections