The Difference Between Invoice Factoring and Accounts Receivable Financing
One of the biggest challenges that small business owners face is the funding gap, an issue caused by waiting on invoice payments.
Many companies are unable to wait months for customers to pay their invoices. So how can small business owners solve their funding gap problem?
There are 2 popular solutions: Invoice Factoring and Accounts Receivable Financing.
Accel Business Funding offers both financing options and we explain their respective differences and benefits below:
Invoice factoring involves a factoring company purchasing your outstanding invoices. In exchange for the outstanding invoices, Accel Business Funding’s clients are given immediate advance payment, which helps to close the funding gap for companies.
Many small business owners opt for invoice factoring because:
Bad credit history or Startups are accepted;
Assistance in collection of outstanding invoices; and
Assistance in checking new client’s creditworthiness.
Accounts Receivable Financing
Accounts Receivable Financing is different from invoice factoring in that you are not selling your outstanding invoices, rather, you pledge them as collateral. Another difference is that accounts receivable financing is structured as a loan or line of credit, both of which are collateralized with your accounts receivable.
One of the benefits of accounts receivable financing is that as your sales increase, the amount you can borrow increases as well. In addition, the underwriting process for accounts receivable financing is simple and quick.
Accel Business Funding has helped many businesses through our invoice factoring and accounts receivable financing services.