Invoice Factoring vs. Invoice Financing: What to Know

Invoice factoring and invoice financing both help businesses turn unpaid invoices into cash, but they work in different ways. Factoring involves selling your receivables to a third party, while financing means borrowing against them. Understanding the differences can help you choose the right funding solution for your business.

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If you run a business, you already know how stressful waiting on payments can be. Many clients pay 30, 60, or even 90 days after receiving an invoice. During that waiting period, bills don’t stop, employees need to be paid, and growth opportunities may pass you by.

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To avoid putting everything on hold, business owners often look for working capital solutions that unlock the money tied up in unpaid invoices. The two most common methods are invoice factoring and invoice financing.

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They sound alike, but they’re not the same. Factoring gives you cash quickly and takes collections off your plate, while financing means borrowing against receivables and managing repayment yourself. Let’s dive into what differentiates invoice financing vs. factoring.

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What Is Invoice Factoring?

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Invoice factoring is when a business sells its outstanding invoices to a third-party company (a “factor”) in exchange for immediate cash. The invoice factoring company advances most of the invoice value upfront (up to 98% with REV) and then manages the collections process. Once your customer pays, you receive the remaining balance minus a small fee (typically 1% to 3%).

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This approach is popular in industries where payment cycles are long, like transportation, staffing, and manufacturing. Instead of waiting months to be paid, you get money right away to cover payroll, fuel, or supplies.

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Factoring also shifts the responsibility of collections from your business to the factoring company. This means fewer administrative headaches and more predictable cash flow.

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Key Benefits of Invoice Factoring

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Invoice factoring provides you with the following advantages:

• Access up to 98% of the invoice value immediately
• Small fees (1 % to 3%) compared to high loan interest rates
• Collections managed on your behalf
• No debt on your balance sheet
• Funds can be used however your business needs

In short, factoring helps you grow without borrowing money, unlike traditional bank loans.

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What Is Invoice Financing?

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Invoice financing is when a business borrows money using unpaid invoices as collateral. Instead of selling the accounts receivable, you keep them on your books and get a cash advance from an invoice financing company or lender.

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Unlike factoring, you’re still responsible for collecting invoice payments from your customers. Once you receive payment, you must repay the lender, usually the original advance plus fees and interest.

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Invoice financing typically advances around 70% to 85% of the invoice amount. The exact amount depends on your creditworthiness, industry, and customer payment history.

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Key Considerations of Invoice Financing:

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In a nutshell, here’s what invoice financing offers:

• Treated as a loan, creating debt on your balance sheet
• Lower advance rates than factoring
• Repayment obligations can tighten cash flow
• You retain the responsibility for collections
• Financing costs vary depending on lender terms

While invoice financing may work for companies that want to keep full control of customer relationships, it comes with more risk and less flexibility.

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Invoice Financing vs Factoring: Key Differences

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To help you compare invoice finance options more clearly, here’s a side-by-side breakdown:

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This table highlights the main trade-offs between accounts receivable financing and factoring. Financing adds debt and limits how much you receive upfront, while factoring gives you higher advances, faster funding, and fewer back-office challenges.

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Learn more: Invoice Factoring vs. Invoice Discounting

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Image Source: Unsplash

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Which Invoice Funding Option Is Best for Your Business?

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Both invoice financing and factoring improve cash flow, but the right choice depends on your priorities.

• Choose invoice financing if you:
  
  • Want to maintain complete control over collections
  • Don’t mind repayment obligations and added debt
  • Are comfortable with lower advance rates
    
• Choose invoice factoring if you:
  
  • Need quick, reliable access to funds
  • Prefer not to take on debt
  • Want higher advance rates and professional collections support

At REV, we specialize in recourse factoring, which provides lower fees compared to non-recourse models while keeping the process simple and transparent. This makes it easier for you to cover payroll, manage seasonal slowdowns, and reinvest in growth opportunities.

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Remember: cash flow fuels growth. The faster you can turn invoices into working capital, the more flexibility you have to make strategic decisions. 

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👉 Explore more about our invoice factoring services.

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FAQs About Invoice Factoring and Financing

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Key Takeaways

• Invoice factoring and financing both unlock cash from unpaid invoices, but they work differently.
• Invoice factoring offers higher advance rates and faster funding, with collections handled for you.
• Invoice financing involves borrowing against invoices, adding debt and repayment obligations.
• Factoring is often the simpler, more transparent option for closing cash flow gaps.
• REV specializes in recourse factoring, combining speed with lower fees.
  

Grow Your Business Through Invoice Factoring with REV

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Managing cash flow doesn’t have to mean taking on new debt. Invoice factoring helps you access the money you’ve already earned, faster and with fewer headaches.

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REV’s model prioritizes transparency, speed, and flexibility, helping you strengthen your cash flow so you can focus on growth.

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Ready to explore your best option between invoice financing vs. factoring? Connect with us and learn how you can get funded today.