Factoring vs. Accounts Receivable Financing

In order for your business to stay successful, it can be a good idea to take time to think about creating a plan of action for times when finances are tight. While a number of options are available to you, some can prove more beneficial than others. Many business owners look toward services like factoring and accounts receivable financing when they need to get out of a financial bind. Learn more about these services to discover which of the options is better suited for the specific needs of your small business.

Factoring Basics

To get started, factoring can be a good service to consider. Essentially, this is a service that centers around the invoices you are waiting for clients to pay. This business will look at your invoices and purchase them from you, providing you with a percentage of the value of the invoices right away. After this, the company will take on the responsibility of collecting the debt and provide you with the difference you’re owed when it has been collected in full. You pay a fee for the service and get the cash you need to stay operational.

A/R Financing

While very similar to factoring in a number of ways accounts receivable financing is a service that offers a few key differences. AR financing involves your invoices the same way that factoring does. Instead of buying the invoices from you outright, the company providing the service will look at the value as an asset. This collateral will be used as a way of providing your company with a business line of credit that it can use to improve cash flow and cover the costs of staying operational.

Main Differences

Though there are similarities between the services, you will need to take time to think about which option is the better fit for your company. If you are looking for a service that provides you with cash without the need to worry about debt, then factoring could be the better fit. However, you may find that AR financing is more useful if you need consistent cash flow for upcoming opportunities. Take time to learn which will align with your business needs to make a better decision for your business.

There are many ways to improve your access to capital when cash flow problems arise. Discover the best fit for your needs and see what you can do to stay on the right path for your future.