Factoring vs. Accounts Receivable Financing

Invoice Factoring Image

Freight invoice factoring and accounts receivable financing are oftentimes considered to be one-and-the-same. However, slight differences exist between the two that could affect your business.

Freight Invoice Factoring.

When you factor, you are actually selling your invoice to a factoring company. This results in a three-part funding structure:

70 to 95 percent of the value of the receivable at time of sale

plus

The remaining balance of the receivable when the invoice is collected

less

1.0 to 5.0 percent factoring fee based on the total face value of the invoice

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Pros:

  • Flexible – You often get to pick-and-choose which invoices you want to sell.
  • Easy to Qualify – Ideal for growing, new and financially unstable companies.
  • Simple – There is an established fee structure.
  • No debt created.

Accounts Receivable Financing.

When you engage in accounts receivable financing with a funding company, you are essentially taking out a bank loan. The difference is that instead of the loan being secured by real estate and/or personal assets, an A/R loan is backed solely by a pledge of all the business’ accounts receivable. Here is a typical funding structure:

70 to 90 percent borrowing base at each draw

less

1.0 to 2.0 percent collateral management fee based on the outstanding amount

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Pros:

  • Less Expensive – Accounts receivable financing is usually less expensive than freight invoice factoring since the company assumes less risk.
  • Easy to Transition – When your company becomes bankable again, it is typically easier to transition from accounts receivable financing to a traditional bank line of credit.

Whether you’re looking to factor or finance, Concept Financial Group can help with both. Concept Financial’s many benefits include same-day funding, free credit checks, no long-term contracts, no minimum volume requirements, and shipper-specific factoring options. Visit their website or call Chris Johnson at 1-866-780-1527.

One comment on “Factoring vs. Accounts Receivable Financing

  1. I had no idea that when you use factoring instead of accounts receivable you are essentially selling your invoice for a factoring company to work with. Accounts receivable is often referred to as a short term loan, this could potentially cause people who are debt resistant to distress when thought of in this manner. Factoring seems like a good solution to go with when accounts receivable is not preferred.

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