Have you ever wanted to find a fast and accessible form of financing for your business? Invoice factoring (also called accounts receivable financing) may be for you. This is a powerful type of financing that has roots dating back to antiquity. If you are interested in this way of funding your business, understanding the pros and cons will help you make a well-informed choice.

How It Works

There are two ways that you can factor an invoice: sell it or borrow against it. In either case, the result is very similar. You will receive money upfront for your invoices and the factor is paid when your customer settles the balance. Typically, selling your invoices is the best way to factor (because then the onus of collecting is on the provider you are working with).


Accounts receivable financing has a lot of benefits that you can potentially enjoy. The most significant is that you don’t have to wait to get paid for your invoices. Instead, you get most of the money right away and can invest it in your business’s growth.

Another significant benefit is that the funding is limited only by your sales. As long as you are issuing new invoices, you can receive additional money.

Many businesses can qualify for this even if they wouldn’t be approved for other types of financing. This is because the decision is based primarily on the credit or the customer who owes money on the invoice. For a similar reason, the repayment process is very simple because it is the customer who will settle the balance.


Depending on the factor that you work with, this process can be expensive. You will need to determine whether the opportunity to get paid today is worth more than the cost. Additionally, some providers will only lend money with recourse. This means that you will be on the hook if your customer is unable to pay.

Some companies may also require long-term contracts. This can mean that you are stuck financing your invoices even when you don’t need to. In short, the cons depend greatly on the partner you work with.

Learn More

Whether invoice factoring is right for your business or not depends significantly on your unique circumstances. As mentioned above, the experience can vary greatly depending on who you work with. The best thing to do is to learn more from specific factors and weigh your options.