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Invoice factoring vs business line of credit
Compare invoice factoring with a business line of credit: how each turns unpaid invoices into cash, who collects, and what each costs.
The short answer
Invoice factoring sells your unpaid invoices for cash now, and approval leans on your customers' credit more than yours — useful for fast-growing or newer businesses. A line of credit keeps you in control of collections and is usually cheaper, but you need the credit history and revenue to qualify. If you qualify for a line, it is often the lower-cost option; factoring fills the gap when you don't.
Side by side
| Feature | Invoice factoring | Line of credit |
|---|---|---|
| What it is | Selling unpaid invoices to a factoring company | A revolving credit limit you draw from |
| Approval depends on | Your customers' ability to pay | Your credit, revenue and time in business |
| Cost | A fee per period the invoice is open (often 1–5% per 30 days) | Interest on what you draw, plus any fees |
| Who collects | Often the factoring company | You do |
| How much you get | Usually 70–90% up front; the rest, minus fees, when paid | Up to your credit limit, for any business use |
| Grows with sales | Yes — more invoices, more funding | Only if the lender raises your limit |
Choose invoice factoring if…
- You invoice other businesses and wait 30–90 days to be paid
- Your customers are creditworthy but your own credit is limited
- Sales are growing faster than your cash
- You're comfortable with the factor contacting your customers
Choose line of credit if…
- You qualify on credit and revenue
- You want to keep handling your own customers and collections
- You need cash for more than invoices — payroll, supplies, timing gaps
- You want the lower cost over time
What it costs on the same amount
A $50,000 invoice your customer pays in 60 days. Illustrative terms only.
Invoice factoring
Factoring: 85% advance, 3% per 30 days
- Payment
- $42,500.00 up front, $4,500.00 when paid
- Repaid over
- 60 days
- Total cost (interest + fees)
- $3,000.00
- Yearly cost (APR)
- 42.9%
Line of credit
Line of credit draw of $42,500 at 18% with a 1% draw fee, repaid over 2 months
- Payment
- $21,729.31 a month
- Repaid over
- 2 months
- Total cost (interest + fees)
- $1,383.62
- Yearly cost (APR)
- 26.2%
For the same cash over the same two months, the line costs less than half as much — but you need to qualify for it, and you keep collecting the invoice yourself.
Questions owners ask
What is the difference between recourse and non-recourse factoring?
With recourse factoring, you buy back an invoice your customer doesn't pay. Non-recourse moves some of that risk to the factor, usually for a higher fee and only for specific reasons such as customer insolvency.
Will my customers know I use factoring?
Often, yes: many factors collect directly, so customers pay the factor. Some offer non-notification arrangements at a higher cost.
Is invoice financing the same as factoring?
Not quite. With invoice financing you borrow against invoices and keep collecting yourself; with factoring you sell them. Costs and control differ, so compare both.
Terms on this page
DrawInvoice factoringLine of creditRecourse factoringWorking capital
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Comparisons and examples are for education only, use illustrative terms, and are not an offer or commitment to lend. Actual rates, fees and terms depend on each provider’s review. ScaleKit Financing is operated by Arch Ventures LLC and is not a lender.