The difference between accounts receivable (AR) funding and invoice factoring is pretty small, in fact sometimes the two terms are used interchangeably. The key component used in both of these funding options is obtaining funds from the company’s accounts receivable, causing some confusing when the terms are used incorrectly. The term accounts receivable refers to any money owed by customers to the seller, and invoices are the business tool that’s used to bill these customers. When a business sells goods or services to their clients, the customer receives an invoice, and the amount of money they owe is then added to the company’s open accounts receivable.

Here are definitions of both invoice factoring and AR funding.

Accounts Receivable Funding is when a business finances its accounts receivable with a lending company. The business receives short-term business funding. The business uses its receivables (the money they’re owed by customers) as collateral in the agreement.

Invoice Factoring is a financial transaction where a business sells its invoices to a factoring company at a discount. They then get an advance on the balance (minus the factor’s fee) and have access to their money much faster than waiting for the customer to pay.

• One of the major differences is that with invoice factoring the accounts receivable invoices are sold rather than offered as security. Factoring isn’t a loan, it’s a sale of a financial asset. On the other hand, AR funding is a loan where the business’s accounts receivable is offered as collateral.
• With factoring, the factor takes over responsibility of collecting clients’ payments, while with AR funding your business still collects the payments as usual.
• Most invoice factoring companies will perform credit checks on your customers and deal with their accounts payable department. If you choose to go with AR funding, like collections, your business will continue to do this as well.

If your business is newer or smaller, invoice factoring would be right for you. Accounts receivable funding is suited for more established businesses with their own credit department. If you’re interested in finding funding for your business, big or small, CoreFund Capital offers both of these services and more. Contact us today to learn more about what service is right for your business!