Accounts Receivable Business Line of Credit versus Invoice Factoring

Accounts Receivable Business Line of Credit versus Invoice Factoring

A person or a business can get a secured line of credit by offering up assets as collateral. It provides a business with funds and is a way to convert accounts receivable into cash.

As a line of credit secured by accounts receivable is a form of a loan, your business has to have the financial capability to pay it off. This form of financing needs a business to have positive cash flow, strong financials and established credit.

On the other hand, a non-recourse invoice factoring refers to an outright acquisition of accounts receivable in exchange for cash. In a non-recourse factoring line, the factor bills the customer of its client directly and makes its position secure by the latter’s credit rather than the client’s credit.

A full-service invoice factoring company gives accounts receivable factoring and credit services, besides business financing. These services include customer credit reviews, collection services, and invoice processing.

The factoring company also referred to as the “factor”, is usually more involved with accounts receivable. The factor usually makes an additional influx of cash available to its business client. Owing to the greater risk and level of services involved in non-recourse invoice factoring, its cost is usually more than that of a line of credit secured by AR.

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