Invoice Factoring vs Receivables Financing for Contractors

What is invoice factoring?

Invoice factoring involves selling or advancing against specific invoices. A factor advances a portion of the invoice value (often 70–90%) and may collect directly from the client. You receive the remainder, minus fees, when the client pays. Factoring is tied to specific invoices. For more, see contractor invoice factoring explained and accounts receivable financing for contractors.

What is accounts receivable financing?

Accounts receivable financing is a broader category that includes factoring. It covers any product that converts outstanding invoices into immediate cash. Structures vary: the lender may advance on specific invoices or a pool of receivables; the lender may collect from the client or you repay when the client pays. For the full guide, see accounts receivable financing for contractors and contractor invoice financing.

When does factoring fit vs working capital or line of credit?

Factoring/receivables fits when you have clear invoices from creditworthy clients and need to convert them to cash. Working capital or a contractor line of credit fits when you need funds for payroll between jobs, mobilization, or material timing without a specific invoice to factor. If your main problem is slow-paying clients with clear invoices, factoring can fit. If you need funds for general operating gaps, working capital or a line of credit may fit better. For the comparison, see how to choose between working capital and a line of credit.

Recourse vs non-recourse

Factoring may be recourse (you are responsible if the client does not pay) or non-recourse (the factor assumes some risk). The structure affects cost and risk. Understanding the terms helps you compare options. For more on factoring, see contractor invoice factoring explained.

Related guides

For receivables, see accounts receivable financing for contractors. For invoice financing, see contractor invoice financing. For working capital, see contractor working capital. For lines of credit, see contractor line of credit. If you need to explore options, you can see what funding options may be available.

Frequently asked questions

What is the difference between invoice factoring and receivables financing?

Invoice factoring is a type of receivables financing. Factoring typically involves the factor advancing on specific invoices and sometimes collecting from the client. Receivables financing is the broader category.

When does invoice factoring fit contractors?

Factoring fits when you have clear invoices from creditworthy clients and need immediate cash. The factor advances 70–90% of invoice value. You receive the remainder when the client pays.

When does receivables financing fit better than working capital?

Receivables financing is tied to specific invoices. Working capital is not. If your main problem is outstanding invoices, receivables may fit. If you need funds for payroll between jobs or mobilization without specific invoices, working capital or a line of credit may fit better.

Can contractors use both factoring and a line of credit?

Yes. Some contractors use factoring for invoice-specific needs and a line of credit for payroll, materials, or mobilization. The products address different situations.