What's the Difference Between Invoice Factoring and Invoice Financing?

What's the Difference Between Invoice Factoring and Invoice Financing?

What's the Difference Between Invoice Factoring and Invoice Financing?

Small business financing has come a long way since ancient times where you could borrow money at exorbitant rates, and if you didn't pay, you could be thrown in jail or even killed. Today, there are many ways for a small business to obtain financing for its growth needs, from commercial loans and merchant cash advances to using the best in alternative financing, such as factoring and asset-based lending.

The Hedaya Capital Group in New York offers the factor and accounts receivable management services in order to help your small business with its cash flow needs. We've been helping small businesses grow for over a decade, and we will continue to offer the best customer service in the industry. Below, we'll take a look at the difference between invoice factoring and invoice financing, which can confuse some people. Reach out to our team today with any questions you have about our small business financing!


Fundamentally, invoice factoring and financing is much the same. For invoice factoring, your small business will sell its invoices (or accounts receivable, which is the money you are owed from the goods you have sold) to a factoring company. The factoring company will then give you a cash advance on the value of those invoices (usually somewhere between 70 and 90%). The factoring company will then collect on those invoices and give you the remaining sum, minus its factoring fees.

With invoice financing, instead of directly selling your invoices to the factoring company, you use those invoices as collateral for a loan, or a cash advance on the value of those invoices. In this case, you are still responsible for collecting on the invoices that are due. This works more like a traditional loan in that you get the lump sum upfront, which you then pay back in monthly installments. This puts all the onerous on you if a vendor does not pay you; you still have to pay the factoring company.

Many businesses prefer invoice financing because it allows them to retain complete control over their invoices and on the collection of their invoices. This still gives them the customer relationship that they enjoy.

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Both invoice factoring and financing offer the same benefits. They speed up the cash flow process since many companies (up to 60%) pay their invoices late, with 20% of those being over two weeks late. Receiving late payments has a domino effect. When you are paid late, you pay your bills and your employees late. They, in turn, pay their bills late and the effect just keeps going. The headache of collecting on late invoices is eliminated with invoice factoring. This alternative form of small business financing can be the only solution available to those businesses if, for whatever reason, cannot obtain other forms of financing.


The Hedaya Capital Group in New York has dedicated our lives to helping small businesses grow with our cash flow solutions. Invoice factoring or financing is a great way to use what you have to get what you need with little risk to you. The application process is much quicker than a traditional lending institution's, putting the money in your pocket usually in as little as three business days. This quick process can eliminate strain and stress on your part, as well as eliminate painful delays in your small business's growth plan. Our small business financing solutions are customized to your needs. Let us help you; call today to get started!