Business owners use "A/R financing" and "factoring" interchangeably, and it's an expensive habit — because the two work very differently. Both turn unpaid invoices into cash now instead of 30, 60, or 90 days from now. But they differ on the three things that matter most: who collects from your customer, who carries the risk if an invoice never gets paid, and what you'll actually pay.
Accounts Receivable Financing: You Keep Control
A/R financing is borrowing against your invoices. Your receivables serve as collateral for a loan or a revolving line, with advances typically in the range of 70–90% of eligible invoices. You still own the invoices, you still collect from your customers yourself, and in most structures your customers never know the financing exists.
That confidentiality is the headline benefit: nothing changes in your client relationships. It's how we structured a $600K line for a New York contractor, advancing up to 80% against public-job receivables — money that was otherwise locked up waiting on notoriously slow payment cycles, with no third party ever contacting the contractor's customers.
Factoring: You Sell the Invoice
Factoring is a sale, not a loan. The factoring company buys your invoices at a discount, advances you most of the value up front, and then owns them — which means the factor typically collects directly from your customer, and your customer is notified to pay the factor. When the invoice is paid, you receive the remainder minus the factor's fee.
That changes the relationship math. A professional factor handles collections courteously, and for some industries — trucking is the classic example — customers are completely used to paying factors. But you are introducing a third party between you and your client, and if the factor is aggressive, it's your reputation on the line.
Recourse vs. Non-Recourse: Who Eats a Bad Invoice?
Most factoring is recourse: if your customer doesn't pay, you buy the invoice back. Non-recourse factoring shifts that risk to the lender — typically for customer insolvency — in exchange for a somewhat higher fee. It's rarer, but it exists: we closed a fully non-recourse facility for a trucking company — no holdbacks and no chargebacks, ever. For a business with one or two large customers whose failure would be catastrophic, that protection can be worth every basis point.
What Each Costs
A/R financing is priced like a loan — you pay financing charges on what you draw. Factoring is priced as a discount fee on the face value of each invoice, often quoted per 30 days outstanding. Neither is automatically cheaper: the answer depends on your volume, invoice sizes, how long your customers take to pay, and their credit quality. This is exactly where owners choose wrong — they compare a factoring fee to an interest rate as if they were the same number, and they aren't.
Which One Fits You?
As a rule of thumb: if your own credit profile is thin but your customers are strong payers, factoring leans on their credit, not yours. If confidentiality and control of the client relationship matter most — professional services, contractors, anyone whose customers would raise an eyebrow at a factor's notice — A/R financing usually fits better. And if non-payment risk keeps you up at night, ask about non-recourse structures.
Because many A/R lenders and factors specialize by industry, the biggest cost mistake isn't picking the wrong product — it's picking the right product from the wrong lender. That's the matching we do across our 50+ lender network.
Not sure which fits your business? Ten minutes and I'll tell you straight. Call 914.419.3059, email mike@ntibfin.com, or book a free consultation.