Alternative Business Financing FAQ

If you manage a business, you know that obtaining business financing can be overwhelming. In addition to traditional sources of funding, such as bank loans, alternative sources of financing have become very popular.

One question we hear on a daily basis at National is, “what is the difference between factoring and accounts receivable financing?” So here is a short answer which addresses some of the main differences.

Differences Between Factoring & Accounts Receivable Financing

Factoring can help a business in need of cash flow by selling an invoice to a third party, or factor, for a discount. The factor will typically pay 75 – 85 percent of the receivable up front and the balance (minus the discount) upon payment.

The responsibility of collecting the receivable falls upon the factor. In fact, the factor will run a credit check on the customer who owes the payment and deal directly with them for collections.

This can potentially damage business relations between the business and their customer. Factoring usually comes at a greater cost than accounts receivable financing due to the greater risk and work involved on the part of the factor.

Accounts Receivable Financing is another alternative to traditional business financing. In this scenario, funding is based upon a company’s accounts receivables as a whole, not attached to one particular invoice.

Collections remain the responsibility of the business and the business is responsible for any bad debt on the receivables pledged as collateral on the small business loan. Because there is less risk to the funding source, this option is typically a less expensive option than factoring.

Of course, there are many things to consider when deciding which form of business financing is best for you.

Get Alternative Business Financing Today

The knowledgeable business consultants at National Business Capital & Services can answer you questions and help navigate you to the best solution. Give us a call today at (877) 482-3008 for a free consultation!

National Business Capital & Services is the #1 FinTech marketplace offering small business loans and services. Harnessing the power of smart technology and even smarter people, we’ve streamlined the approval process to secure over $1 billion in financing for small business owners to date.

Our expert Business Financing Advisors work within our 75+ Lender Marketplace in real time to give you easy access to the best low-interest SBA loans, short and long-term loans and business lines of credit, as well as a full suite of revenue-driving business services.

We strengthen local communities one small business loan at a time. For every deal we fund, we donate 10 meals to Feeding America!


About the Author, Megan Capobianco

Megan is passionate about helping business owners along their journey - providing them with relevant content they can use in their day-to-day operations.

Disclaimer: The information and insights in this article are provided for informational purposes only, and do not constitute financial, legal, tax, business or personal advise from National Business Capital & Services and the author. Do no rely on this information as advice and please consult with your financial advisor, accountant and/or attorney before making any decisions. If you rely solely in this information it is at your own risk. The information is true and accurate to the best of our knowledge, but there maybe errors, omissions, or mistakes.